“Disruptive innovation”, introduced by Clayton Christensen and now stretched almost beyond recognition through misuse, refers to a unique and specific type of change in markets. A new product or service is introduced that offers a different set of benefits. Initially, the product/service is of interest to only a small segment of the total market and, when compared to incumbents, is not especially impressive. In time, though, the value of the product/service (the best balance between cost and quality) improves and the types of benefits it offers becomes increasingly important to a larger segment of the total market.

Disruptive innovations can supplant dominant providers. That’s why they are so exciting. They don’t seek to emulate the established institutions and companies, they offer something different and potentially of more value. And established providers are often unable to respond. Incumbents typically have the resources to generate innovations, but their commitments to existing customers, focus on improving existing systems, and their indifference to small, niche markets, stops them from investing sufficiently in new products and new markets.

In higher education, “badges” may be the most potentially “disruptive” innovation of all. If badges become recognized as legitimate markers of knowledge and skill (i.e. they increase in value) then they could challenge certain market segments within traditional higher ed, particularly continuing education units, where many students are often less concerned with formal credentials. And once new forms of credentials are accepted, we will see a rapid proliferation of new content providers.

Non-Disruptive Innovation

Some of the more interesting non-traditional practices in digital higher education seek not to disrupt or supplant, but to integrate with the established model of higher education.

OESP’s (online education service providers) are a good example. Well-known OESPs include 2Tor, Embanet, Academic Partnerships, Bisk Education and Higher Education Online (UK). These companies provide capital and services that enable universities to more quickly build high-enrolment academic programs. Services include market research, lead generation, admissions, faculty development and support, and course development – most of the elements required to develop, market and manage new online programs.

OESPs provide the capital to fund the new program development, typically between 500k and 10+ million (USD). In exchange for this investment and ongoing services, the OESP receives a share of tuition revenue generated from the new program – anywhere from 50 to 80% – for the life of the contract, which lasts between 6 and 10 years.  Because the potential enrolment growth of these programs is heavily dependent on the university’s brand, OESP are best served by working with “name” institutions (see, for example, USC, NYU, UNC, Georgetown, Northeastern). For its part, the university primarily contribute the brand and intellectual capital.

For some universities, the OESP model represents a low risk approach to building online capacity. More than a few clients have earned positive financial returns and express confidence in the quality of the programs.

Unlike disruptive innovations, the OESP model does not seek to displace the traditional model of higher education. It’s not a direct challenge, but an extension of the existing model through the addition of services, skills and capital that are otherwise unavailable to the client university. Nevertheless, the OESP model is a change of practice for traditional higher education. And the involvement of commercial interests is never a simple matter. News stories have appeared over the last few years in which faculty contested what they believed was an outsourcing of core academic activities.

OESP are likely to continue growing. University budgets are getting tighter, competition in certain segments of the online market is growing, and the demand for online programs is still rising – particularly for graduate and professional programs. Also, many traditional colleges don’t have a clear idea of what’s involved in creating successful, scalable online programs. Basic questions are still being asked, such as “what will it cost?” (I’m reminded of the 2011 Campus Computing Project in which roughly half of respondents said they didn’t know if their online learning programming was actually profitable).

It will be interesting to see how the OESP model evolves, particularly as more universities centralize their online education operations and increase their investment on related in-house resources. These trends may make the decision to create a separate and distinct unit for online education – which the OESP model encourages – less logical. I suspect OESP’s will seek to find ways to ensure that their services increasingly serve the interests of the entire institution and meld, more fully with centralized services.

RELATED ARTICLES BY KEITH HAMPSON

The LMS: It’s Not All About You

Minding the Gap: Instructional Technology and Pedagogy

OESPs: A Couple of Questions

12 thoughts on “OESP’s and (Non) Disruptive Innovation

  1. OESP’s are a good example of what Christensen calls “sustaining innovation” – innovation that is used to sustain the existing business model of a company. The fundamental business model of the universities are not changed when they pull in an OESP- they have simply found a way to increase their market reach. “Disruptive innovation” requires not only a new technology, but also a new business model maximized around the new technology, which leads to a new, lower cost structure and new flexibilites. Universities with significant brand value will probably focus on sustaining innovation, while those with weaker brand will probably feel sufficiently threatened that they have to attempt to do something disruptive. The big exception to this may well be MIT, with its potentially game changing MITx.

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  2. Thanks, Dr. Armstrong.
    Essentially, I’m trying to pull apart and clearly distinguish between the different types of innovations that are emerging within traditional higher ed – including OESPs. I want to create a “map” of the terrain which will, I hope, make it easier for us in the field to talk about and work with these different approaches.
    Actually, it was your writing that got me started in this area. (So, I have you to blame.)
    Keith

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