Thursday, May 19, 2011

First, higher education. Next, academic medicine.

Higher education is ripe for the fleecing by new firms with disruptive technology and strategies. For decades, the university world has been jokingly termed an "ivory tower." Well, it turns out that this is an apt metaphor. Let's look at some of the underlying characteristic of the world's great universities: A huge physical plant; an "edifice complex" that pushes construction of new buildings with little consideration for their maintenance and operating costs; a cadre of aging, tenured faculty; a willing supply of wannabe faculty members who have invested hundreds of thousands of dollars in opportunity costs by getting Ph.D.'s in highly specialized areas and taking lower paid junior positions until they get their "union card." All this is supported by ever-rising tuition; philanthropy that is needed to offset the tuition for a growing number of students; and, often, diminishing federally sponsored research that never has paid the full indirect costs of that research.

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.

The lessons here for high fixed cost academic medical centers are clear. Academic medical centers face all of the problems of two stressed industries -- academia and medicine. The future will belong to the efficient. Hospitals that are driven by their senior faculty and hopeful junior faculty to expand buildings and research facilities, that invest in high-cost but unproven clinical equipment, that do not engage in front-line driven process improvement, that fight transparency of clinical outcomes -- and that plan to depend on private and government reimbursements, government grants, and philanthropy to pay for all this -- will not do well. Those that limit capital investment in inflexible fixed assets, that focus on higher quality and reducing waste, that endorse transparency, that invest in the science of health care delivery as much as basic science, and that develop and implement treatment modes that take care to the patient rather than requiring physical visits by patients, will do well.


Jill Rose said...

Another potential disruptive model is Western Governors University. I recently wrote an article on them (the cover story of the May/June edition of Education Executive).

At WGU, courses are taught online, greatly reducing facilities costs. Also, the program development, grading, and mentoring functions are separated. Finally, students are charged a set tuition fee every six months and are evaluated based on competency rather than time spent in a particular course.

Anonymous said...

I vote for an MIT School of Medicine, with course requirements at Sloane and at least two community health centers.

Anonymous said...

The University of Central Florida and the Florida State University offer just such programs for medicine. Both have a few dozen faculty members that teach core science in years one and two. Years three and four are spent in rotations with community physicians across the state. Exposure to research largely occurs in the community setting. As you can imagine, this model does not sit well with the traditional establishment. Florida has a huge population and very few training programs. This is a novel approach to training tomorrow's providers.

The Medical Contrarian said...

You are spot on in your assessment..