Business Model Innovation in Online Higher Education

We're beginning to see real change in higher education. Not just incremental, "around the edges" change, but substantive and inspiring. At long last.

No, I'm not referring the first wave of MOOCs. These early efforts at MOOCs amounted to little more than promotional vehicles for elite universities that don't need promotion, and innovation from institutions with the least to gain from change in higher education.

Rather, I'm thinking here of initaitives like ASU's Global Freshman Academy, the sincere interest in competency-based education which, if done right, requires a substantial modification to current practices, new kinds of partnerships between education companies and colleges, and Minerva University, which merges location and online learning in interesting ways. 

Each of these represents an example of business model innovation. A business model is simply a way of describing how an organization - whether it is a private enterprise or non-profit, retailer or university - goes about providing something of value to people. It's how it creates, markets and sustainably funds the goods or services it offers.

Higher Education's Overarching Business Model

The concept of business models can be used to help us more clearly see understand how our institution is organized and how it operates. This isn't always obvious: over time, the design of mature institutions like higher education often appear natural and inevitable - fish are the last to notice the water. The concept of business models can help us identify the ways we differ from other organizations. And most importantly, it can help us imagine new ways of organizing ourselves in order to do better work.

Most non-profit colleges and universities of higher education in North America operate under essentially a single business model. The differences are a matter of emphasis, variations on a common theme. For example, some institutions place greater emphasis on full-time faculty research productivity. But most institutions only hire faculty that have demonstrated the capacity to do university-level research. And as Christensen has argued, many instituions - regardless of how selective, or how much they emphasize research - share a common notion of what constitutes a "great university" (i.e. research prodcutivity, brand-name faculty, selective admissions, etc).

But as many of the examples above suggest, more substantial forms of innovation operate at the program level, rather than on an institutional level. This is true in higher education, as well as in other sectors. The challenge is to scale-up these efforts once they prove successful.

The Business Model Canvas

Rethinking how we operate can be aided by tools like the "business model canvas", created by Alex Osterwalder and described in his very popular book, Business Model Generator. The Canvas makes it relatively easy to understand your organization's mode of operation, and how you might do it differently.

Source: Business Model Canvas

Here's a quick application of the Canvas to higher education:

Market segments

Who does the institution serve? Many universities focus on 18-24 year olds, who have recently graduated from high school. Some universities widen their focus with programs serving adults, who are returning to complete undergraduate degrees.

Value proposition

What are the reasons students and other turn to your institutions? E.g., Widely-recognized credentials that have value in the labor market; ranking as a top research university.

Key activities

Which activities are fundamental to your organization? E.g., Research, teaching, evaluating student performance, developing programs in subjects of value to society, and granting degrees.

Revenue streams

What are the sources of funds that make your institution sustainable and how do you capture these funds? E.g., Government capital grants, tuition, philanthropists and research grants.


How does your institution interact with stakeholders? E.g., Through on-campus teaching, conference participation, scholarly journals and media.

Key partners

What are the other organizations your institution partners with on a regular basis? E.g., Research granting organizations, private companies seeking research partners, and regulatory/accreditation bodies.

Cost structure

What are your main costs, and how do you go about paying for these costs? E.g., Faculty and instructor salaries, administrative staff, building maintenance and marketing.

Key resources

What are the key resources that every college and university must possess? E.g., Faculty, buildings and accreditation.

Stakeholder relationships

How does your organization build and maintain relationships with its key stakeholders? E.g. alumni organizations, university email systems, university social networking (Facebook), learning management systems, and media relations officers.

Identify Differences Between Types of Institutions

To illustrate how you might use the Canvas, let's consider some of differences between types of higher education institutions:

Elite colleges and universities in the US. Higher admission stanadards impacts "Key Resources", for example. More emphasis is placed on physical campus. The "Cost Structure" will include a higher sticker price (tuition), as well as higher level of discounting, and greater funds from alumni (due to the relative wealth of student population and their future earning potential).

Fully online coleleges and universities will have different "Cost Structures" (less need for buildings), different "Channels" (online versus face-to-face, and different means of manitaining "Stakeholder Relationships".

For-profit colleges and universities in US. They place less emphasis on research and the social aspects of higher education. This difference will be captured, for example, in "Cost Structure", "Key Resources", "Key Activities", and "Market Segments".

What constitutes a wholly different business model is subjective: there are no hard and fast rules about what constitutes a different business model rather than simply a difference in emphasis, but I don't think this weakens the value of the Business Model as a concept for analysis.

Online Competency-Based Education: An Example of Business Model Innovation

Competency-based education is a significant shift; a distinct business model.

CBE gives shape and direction to the long overdue need to personalize learning in higher education. It allows students to progress at their own pace, incorporates the practice of prior learning assessment (indirectly through self-paced learning or directly through credential recognition), and offers a logical framework for aligning the demands of the labour market with higher education to the extent deemed appropriate by the institution. CBE works especially well for adults that are returning to school to complete programs of study, and it has the potential to reduce costs for students, institutions, and taxpayers by shortening the time to completion.

Designing competency-based learning requires, if done well, considerably more thought and planning than is currently devoted to course design. Ensuring that each component of the course — objectives, assessments, and learning activities — are perfectly aligned is, sadly, not common. Moreover, creating the high volume of assessments (formative) required to measure student mastery of the material is labour-intensive. Rather than offering students 3 to 5 assessments per one-semester course, as is common, competency-based learning requires that we provide each student with hundreds of opportunities to test their understanding of the material. These assessments are required in order to measure a students’ mastery and, in turn, to determine how quickly they can move through the curriculum — a foundational element of the CBE model.

This requires different tactics for designing and developing courses. Few institutions are currently set up to build hundreds of formative assessments needed to measure student progress and to ensure that each of these are aligned with the prescribed learning objectives and learning activities. Few have the internal capacity to create learning platforms that measure student performance and provide detailed asssessments based on these measurements. Institutions will turn to vendors and form partnerships with other institutions to build these tools and processes. More will link their programs to other institutions and industry associations to increase the volume and, therefore, the value of the data generated. 

Institutions will need to be prepared to move students through at different paces — rather than as a cohorts, semester-by-semester. This has both pedagogical and administrative implications, as students benefit from having other students learning the same material at the same time. We need to maintain (if not extend) this benefit while accommodating variable time-to-completion. Institutions need to be able to register and process students on an ongoing basis. This is technically simple, but not as easy as you might imagine given the embedded nature of these administrative systems in our institutions.

It's certainly not business as usual, but the benefits could be tremendous.

Keith Hampson, PhD


Keith HampsonComment