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I wrote an article before the corona virus pandemic three years ago about the decline in higher education caused by massive disruption to a four-centuries old model, that, unlike almost every other industry had managed to avoid market forces for essentially it’s entire existence. In that article I asked whether or not there was a future for higher education as we know it. It has become clear that for a large chunk of traditional higher education, the answer is simply, “no.”
Over the last ten years a combination of factors including demographics (declining birth rates), increasingly negative views of higher education, unsustainable revenue and financial models, cost and debt, structural changes in the economy, a diminishing return on investment for students, and a growing number of alternatives has decreased college enrollments by well over 2,000,000 students compared to 2010. You can see a comprehensive explanation of each factor here. And that’s just the first wave. 2020 has seen the greatest year over year enrollment declines in the entire 10-year cycle and the disruption from competitors and technology is just getting started.
We are entering a phase in which the effects of an imploding business model that began years ago are being exacerbated by additional disruptive forces such as the de-monetization of post-secondary education caused by shorter, cheaper, industry driven, non-credit, non-degree educational programs. This has been in the pipeline for years, but the blockbuster changes of 2020 are the entry of companies like Amazon, Google, and Netflix into the post-secondary education space, which is simultaneously blowing up the last vestiges of the two, core elements of the traditional higher education model: tuition and degree programs. At the same time, these companies, and many others, are no longer requiring traditional college degrees for employment. While there will continue to be some jobs that require degrees and/or licensure that at this point can only be earned through college programs (think: health care, engineering, high-end accounting, etc.), that will become a shrinking part of the overall employment credential market and eventually even those jobs will be accessible without traditional college programs. In fact, the transition has already begun with computer science and engineering, project management, human resources, business management, numerous vocational jobs, and even lower end allied health positions—all jobs for which the training used to come from college degree programs. A survey conducted during the pandemic found that 63% of adults said that if they pursued an educational program, they would prefer non-degree skills training or certificates rather than a degree program at any level, so it’s clear that given a choice, the student market is moving away from degrees as well.
And unlike other industries that have gone through and survived powerful disruption by reinventing themselves, higher education writ large is simply unprepared and incapable of making similar transitions. Of course, there are exceptions, and the best of those will thrive, but broadly speaking colleges and universities are structurally impaired when it comes to transformational change. Examples include the shared governance model, high fixed overhead, a regulatory regime that stifles innovation, organizational and academic culture, inadequate executive and board leadership, and constituencies that are more vested in the status quo than in survival. The good news is that we know what the necessary leadership profile looks like for institutions and boards that are ready to hire those kinds of leaders. Unfortunately, large numbers of colleges and universities were dramatically weakened even before COVID and before the entry of additional disruptive forces. As noted by Moody’s, roughly a third of all institutions were operating in the red before the pandemic. That number is likely to be approaching 50% at this point, as both tuition revenue and state support continue to decline at the same time pandemic expense is increasing.
Relatedly, with few exceptions, traditional higher education simply does not support, and is not capable of supporting, industry in any meaningful way. Before COVID, most industries were abandoning higher ed as an employee pipeline and building their own infrastructure for both entry level and on-the-job training. While the pandemic put the brakes on that in some parts of the economy such as hospitality and aviation, it has dramatically increased in other areas such as logistics, online retail, healthcare, and technology. In short, higher education is quickly losing its long-held monopoly as the path to professional education to companies and organizations that deliver affordable, relevant, “fresh,” just-in-time job skills via programs designed by the employers for whom the students will work!
But it gets worse.
One of the key reasons that there is no future for a large swath of traditional higher education as we know it is because for many students, post-secondary education has become a retail transaction, similar to any other in their lives. This is an existential problem for colleges and universities (regardless of the sector they’re in) because they charge high prices for what is typically one of the highest-friction, poorest customer experiences a student can have, which, by the way, also requires a huge investment of time and effort, for an outcome with a declining (and in some cases, negative) ROI! Moreover, traditional higher education is one of the last, worst adopters of technology as a tool for creating a positive, efficient customer experience. Disruption requires an alternative to the status quo that works better for a large number of consumers and the trend we are at the front end of now will soon be a tidal wave led by disruptors for whom the bar of an easier, better experience and value proposition is already low.
The primary cause, then, that the market for traditional higher education will be so much smaller in the fairly near future than it was even a decade ago, and relatedly why so many more institutions will merge or close, is because colleges and universities are fundamentally unprepared to reinvent themselves at the same time that new providers that understand the retail and service model are aggressively entering the post-secondary market with options that are faster, cheaper, easier and often provide an immediate, high value return on investment.
Moreover, some key factors will continue to present growing challenges for traditional colleges and universities such as worsening demographics, decreased public funding, and further disconnects from industry which has needs that higher ed has broadly failed miserably to meet. The top echelon of the most elite institutions will be able to operate for the foreseeable future much as they have for the last century, but that represents about 10% or less of all of the colleges and universities in the country. Declining birth rates alone will decrease the pool of available college freshman by a fifth or more between 2025 and at least 2040! As the traditional market continues to shrink, the one third or so of institutions that are “exclusive” (they accept fewer students than apply and still fill all their seats) will each become less exclusive by poaching from the layer below them, until there is no layer from which to poach—at least the remaining two thirds of higher education. For post-secondary education, however, which includes every conceivable education program after high school, the market includes everyone from 18 to post-retirement age, who, by the way, will have to continue going back to “school” over and over again for their entire working lives. Declining birthrates are inconsequential for organizations operating in that market.
Because higher education is shrinking while post-secondary education is growing, whether programs are ultimately offered by colleges, industry, or other providers, those who are able to deliver education that customers need and want, when they need it, with a positive customer experience, will be part of the market that is growing. Those who can’t either have to be in the top tier of exclusive traditional colleges, or they will eventually go away.
A Note on the Effect of the Pandemic
I have had direct visibility into dozens of institutions of higher education over 2020 and while they have achieved herculean results managing the crisis, in fact doing things they would have thought simply impossible before the crisis, almost none of them are meaningfully thinking about the future. In part, they have used every inch of organizational bandwidth and in part they are simply exhausted, but I am aware of exactly two institutions out of probably 30 or 40 that are actually thinking in a strategic and entrepreneurial way about what comes next. Most have confused solving really hard crisis-driven operational problems with innovation or planning for the future, and it is neither. And the vast majority of the folks I’m in communication with have no idea of the true disruption that is on the horizon—they think it was COVID. They naively believe that having temporarily solved the problem of delivering education and services remotely has prepared them for the future!
So, when I wrote my first article on disruption in higher education about three years ago, I was aware of all of the factors (other than a global pandemic) which are conspiring today to profoundly disrupt one of the oldest “industries” in America. What I didn’t fully understand at the time was the underlying weakness and lack of resiliency in much of higher education overall and the extent to which many colleges and universities would actually choose to fail rather than change. What makes most other industries different in the face of disruption is their willingness to fight and to reinvent themselves to survive. Because that is broadly not the case in higher education, my sense is that the growing disruption will leave more wreckage in its wake.
On the other hand, disruption always brings opportunity for those who are fully aware of and accept the reality and have the courage to embrace even foundational change. As it relates to higher education, those institutions will have the added advantage of being in the minority and thus more likely to benefit from the courage to reinvent themselves.
To explore what options exist to increase the likelihood that your institution is on the side of the ledger of surviving and thriving this tsunami of disruption, reach out to Dr. Wallace Pond at firstname.lastname@example.org or https://www.linkedin.com/in/wallace-pond-47b05512/