In short, we have high fixed costs dependent on highly uncertain revenue sources; incumbents who have no reason to work hard and be innovative; junior members of the faculty who need to focus on their research -- rather than teaching -- to get tenure and who, upon receiving tenure, lose incentive to be productive; and tuition that has regularly risen at rates greater than inflation.
You don't have to be Clay Christensen to guess what happens next. Upstart firms enter the education market and cream-skim highly profitable segments by offering specialized schools, modern approaches to teaching using part-time faculty, and pricing their services at rates that are more reflective of the opportunity costs of students.
I recently became aware of two examples. One is the Hult International Business School and the other is a firm called 2tor. They have different business models.
As first blush, Hult might seem like any business school, but check out the differences. Yes, it has a physical campus; but, no, it has five small physical campuses in cities selected for their likely commercial value, i.e., proximity to up-and-coming people in the business world (Boston, San Francisco, Dubai, London, and Shanghai). Teaching staff is drawn from practitioners in the field:
Unlike other business schools that are research-oriented, Hult’s talented pool of faculty are academics who also have significant business experience. Over 80 percent of our faculty have had actual business experience, working for companies like Procter & Gamble, Motorola, Credit Suisse, and Monitor Group—others have started successful ventures themselves.
Results: In 2002, the Economist Intelligence Unit ranked Hult the third best business school in Massachusetts, after Harvard Business School and MIT's Sloan School of Management.
2tor's approach is different, partnering with physical institutions of higher education to deliver rigorous, selective degree programs online. In essence, it takes a campus-based program off-campus, but retains the core competencies and reputation of the host university in doing so. A summary:
2tor supplies universities with the tools, expertise, capital, and global recruiting needed to compete in a space currently dominated by unexceptional programs. 2tor develops state-of-the-art technology platforms that enhance traditional offline curricula to create transformative instruction using the best educational and Web 2.0 technologies. 2tor also develops the human and support infrastructure needed “on the ground” and provides the vital—yet often-overlooked—logistical components of any online program, including comprehensive student support services from enrollment through graduation and beyond as well as practical learning experiences within distant communities around the country.
Notice that we are not talking about degree factories here. The emphasis is on quality, but with an understanding of the need to offer curriculum in a setting that goes to the market, rather than expecting the market to come to them. They make use of new digital technology approaches rather than physical infrastructure. They draw in faculty in a way that is very different from one based on the academic tenure process. As a result, there is more pedagogical flexibility and adaptability to the market over time.