Jun 182013

I recently finished reading Clayton Christensen's book The Innovator's Dilemma (TID), which talks about technological innovation and how companies can effectively manage it.  TID was originally written in 1997, and I read a (slightly) updated version published in 2011.  I found this book fascinating, especially the way that Christensen broke down innovation into two distinct categories: sustaining innovation and disruptive innovation.  Each of these categories requires different strategies to manage productively, which are supported by historic studies of innovation in many different industries such as hard drives, excavators, steel, computers, motorcycles, and more.

Sustaining innovation is technology and process updates that give a company's existing customers more of what they want.  This is in contrast to disruptive innovation, which initially has no known customers, unknown applications, and capabilities that existing customers do not value.  But once the market for the disruptive innovation is found and grows, it will eventually take over the company's existing customers, often driving the company out of business.  TID points out that it is very odd that companies so often have problems managing disruptive innovation: sustaining innovation can be incredibly complex and expensive, but leading companies will almost always spend the resources necessary to see it through and bring the sought-after innovation to market.  Disruptive innovation is the opposite--it is often cheap and quite simple compared to what an industry-leading company already produce, but it is usually of "inferior" quality to existing customers.  Since existing customers do not want the disruptive technology, the market must be found for it before money can be made.  Large, successful companies historically do not perform this search--Christensen believes that is because established companies see the search for an unknown market as risky when they have existing customers they can continue to please through their established processes.

I found the ideas presented in TID particularly fascinating in terms of the higher education industry because of my work with the Birdseye College Cost Comparison site and because of the time I spent down in the trenches as a university professor.  The university business looks, to me, very similar to the large, established firms discussed in TID that, over and over again, got driven from their markets by smaller upstarts peddling disruptive technology.  The similarities in brief:  universities are established, they offer exceptionally complicated products in terms of accredited degree programs in many disciplines, and they are completely reliant on high-end customers feeding them fat margins.  Almost all of their development caters to these high-end customers.  To illustrate reliance on high margins, consider that many private, non-profit universities derive a large portion of their net budget, often a majority, from room and board charged to students for ever-more palatial "dorms."  Really, these dorms are more similar to luxury apartments than the two-to-a-tiny-room block houses of old.  Universities are essentially getting a significant portion of revenue from an expensive, high-margin add-on to their main product, at a time when news services regularly report that cost is a great concern.

After reading TID, I do not know what disruptive innovation will rise.  In fact, TID makes the point that this cannot be known.  But I can speculate based on what I know of the market and what cheap, readily-available technology currently exists.  Video courses might be one option:  with the expansion of low-cost fast Internet connections and the affordability of streaming and receiving video, entire video lecture series and accompanying material can be created and distributed.  The rise of Wikipedia offers another option:  a vast quantity of small, discrete, digital, educational elements (videos, interactive programs, web pages, homework assignments, etc.) created by a diverse number of experts that can be mixed and matched to create educational packages tailored to meet knowledge or skill goals for individual customers.  Or it could be something else entirely.  Whatever product arises, it will initially be something that existing customers (students going to university right now) neither want nor need.  These products will also not have many features the current higher-education market demands.  Perhaps no one in the new market is concerned about homework, tests, football games, lectures, grades, personalized feedback, dorms, accreditation, degrees, certification, etc.  The lack of some or all of these features will make the new product look "inferior" when compared to the established market, but the new product will have features that appeal to a different, initially unknowable set of people--the new market.

I have no idea what this low-cost, higher-education market is or what products to serve it will look like.  TID makes a compelling case that markets for disruptive innovation cannot be known before they arrive.  That said, I do not think that companies currently providing free college courses over the Internet such as Corsera or Udacity have figured out who the customers in this new market are or what they want.  At least not yet.  Both companies seem too locked into the current university model, expending a great deal of effort trying to emulate features of the university system, trying to become equivalent to a university.  I am not sure this is serving them well.

But whatever the new higher-education market turns out to be, it will be largely ignored by existing universities when it arrives because its margins are too low and the products too simple.  Years later, seemingly overnight, the new market's products will be sufficient for most then-current university students, and there will be a massive shift away from the current university model to the new model.

We live in interesting times.  Wherever this evolution eventually takes us, it is an exciting time for higher education.  I cannot wait to see what develops!