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Modern Strategic Planning and Management in Higher Education
In the spring of 2014, the Harvard Business School unveiled a new educational initiative, HBX. Its initial mandate was to offer three foundational business coursesâfinancial accounting, business analytics and economics for managers (Borchers 2014). The launch had several noteworthy elements. First, it was the Harvard Business Schoolâs first foray into education below the graduate level. To be eligible to participate in HBX courses, students needed only to be pursuing an undergraduate degree. Second, HBX represented the business schoolâs first online educational offerings. Harvard, in conjunction with the Massachusetts Institute of Technology, was at the forefront of the development of Massive Open Online Courses (MOOCs) with the development of what it called the edX platform; the business school created HBX.
HBX represented the outcome of a well-publicized debate between two of Harvardâs most prominent business professors about how the school should strategically respond to the potential and growth of online education, which, according to some observers, was perhaps the most important strategic decision the school faced since its founding in 1924 and adopted the case study method of instruction (Useem 2014). At the same time, online platforms like edX, Coursera and Udacity were attracting hundreds of thousands of students as well as the attention of venture capitalists. Premier educational institutions such as Stanford University were jumping into the arena. Highly prestigious universities like the Georgia Institute of Technology were experimenting with putting entire degree programs online. How should the Harvard Business School respond, if at all?
On one side of the debate was Michael Porter, seen by many as the leading authority on competitive strategy. Porterâs book Competitive Strategy (Free Press, New York), published in 1980, has been cited as one of the ten most-influential management books of the twentieth century by the Academy of Management (Bedeian and Wren 2001). His book Competitive Advantage (Free Press, New York), published in 1985, became something of a bible to business managers (The Economist 2008). On the other side was Clay Christensen, who, with his 1997 book, The Innovatorâs Dilemma (Harvard Business Press, Cambridge, MA), positioned himself as the primary theorist of what has come to be called âdisruptive innovation.â Over time the concept of âdisruptionâ has become the mantra for those in organizations who advocated change.
In Porterâs view, organizations gain competitive advantage in one of two ways: either they can offer their products to buyers more efficiently (that is, at a lower cost), or they can differentiate their products from their competitors (The Economist 2008). Christensen held a different perspective. The theory of disruptive innovation suggests that new competitors can challenge the major players in established markets by entering overlooked niches, often those whose profitability is lower, or niches that do not meet the needs of the most demanding buyers of the entrenched suppliers. In this paradigm, established companies often overreach the needs of many customers, offering more features on products than many customers need and with prices that are too high and out of the reach of those who did not need such robust products. After entering the market through an underserved, low-cost niche, new entrants can move upstream while keeping the advantages they developed in profitably, filling those underserved corners of the market and forcing the incumbents to respond; as such, the established market has been disrupted by innovation (Christensen et al. 2015).
With the growth of online education, business schools looked like a market that was ripe for disruption. Although Harvard and other top-ranked schools offered prestige and alumni networks, the education offered by business schools themselves often was not highly differentiated. In fact, the curricula of most respected graduate schools of business meet standards dictated by the Association to Advance Collegiate Schools of Business (AACSB) or other accrediting agencies. Moreover, since many business schools use the case study method of instruction pioneered by the Harvard Business School when it was established more than 90 years ago, the in-class experience frequently is not all that different from school to school. Finally, attending the Harvard Business School is expensive, very expensive. In 2015, the full program cost more than $120,000 in tuition and fees, putting it out of reach for many prospective students even if they could win acceptance.
Figure 1.1 Disruptive Forces in Higher Education
Not surprisingly, Christensen believed that Harvard Business School should disrupt its own model and embrace the opportunity online education offered to provide a Harvard experience to many more people at a much lower cost. Indeed, in 2011 Christensen had taught an online course about disruptive innovation through the University of Phoenix that reached 130,000 students. In one of his classes, Christensen presented the Harvard Business School as a case study, raising the question: would HBS end up like Blockbuster Video, which was made obsolete by streaming services such as Netflix, a classic disrupter in the Christensen typology? One of the suggestions that emerged in the class challenged the status quo by crafting a strategic response: put the business schoolâs entire first-year curriculum online. Michael Porter was skeptical of that approach. In 2001, he wrote an article about strategy and the Internet in which he suggested that on balance the widespread deployment of the Internet had, to that point, hurt companiesâ abilities to establish sustainable operational advantages. More worrisome, it had reduced profitability as well. The Internet could help a company achieve a competitive advantage only if the Internet efforts were a complement to the traditional ways of competing and not set apart from established operations. The Internet should be interwoven into existing strategies and buttress established advantages, from Porterâs perspective (Porter 2001).
The Harvard Business School Model
When it came to making a strategic decision for the Harvard Business School, Nitin Nohria, the dean of the business school, leaned more toward Porter than Christensen. He geared HBX toward a new market, undergraduate students. Unlike MOOCs, HBX charged tuition, though not nearly as much as a residential course might cost. And, at first, students who completed the three initial courses received what they called a credential of readiness (CORe). The program had two strategic objectives. The first was for Harvard Business School to reach students it had not served in the past, instead of addressing the needs of its traditional markets of graduate students and executive education, which combined generate nearly $250 million in annual revenue. While not lowering the price of a Harvard business education, HBXâs second objective was to generate additional revenue. Indeed, the core principle underscoring HBX was that it would not be a substitute for an MBA and it would be self-sustaining. Its courses would also have to embrace the case study method of learning. In other words, HBX courses would somehow embody the business schoolâs traditional educational values and methods but be delivered to a new market and at a lower cost but not for free. HBX also had a systematic implementation strategy. At its launch, HBX courses were offered only to students in Massachusetts. Since then, Harvard has inked deals with several elite liberal arts colleges such Amherst, Wellesley, Bowdoin and Williams. It is also partnering with corporate clients and universities in other countries. It is opening the program to older students and offers it as a pre-MBA boot camp. Finally, it has begun to offer up to eight credits through the Harvard Extension School for CORe classes.
Harvard Business Schoolâs strategic response to online education is hardly the only option. For example, the Wharton School at the University of Pennsylvania opted for a different approach. In 2012, almost on a lark, Peter Fader, a Wharton professor, created an introductory course in marketing that was offered as a MOOC on the Coursera platform. Three years later, more than 300,000 people have taken the course, and nearly 100,000 have taken a second course he developed that focused on customer analytics. And Fader wasnât alone. In that period, more than 2.7 million people have enrolled in Whartonâs 18 MOOCs, with 54,000 receiving verified certificates of completion, which initially cost $49. The price for the verification was then raised to $95 and then $149. The school also issued more than 32,000 verified certificates of completions in specializations, in which students take four courses for $595. Within three years, Whartonâs MOOCs were generating more than $5 million annually.
MOOCS, SPOCS and Nanodegrees
In the wake of the response, the Wharton School decided to invest more heavily in MOOCs and other online offerings only loosely tied, if at all, to its traditional MBA and executive education programs. The school began developing two dozen new courses including what it calls Specialized Private Online Courses (SPOCs), for which it planned to charge $3,700 in tuition. Fader pioneered the SPOC concept for a course that explored the strategic value of customer relationships, which was limited to 30 students. The Wharton Schoolâs dean, Geoffrey Garrett, felt that online education could play a different strategic role than the one at Harvard. He saw a four-fold opportunity. The investment in MOOCs could bolster Whartonâs global brand. It provided a Wharton education to students who would never be able to attend classes on the universityâs Philadelphia campus. The courses could identify people who may be good candidates for the traditional MBA program. And, in a discipline in which a textbook might cost as much as $200, it could generate a lot of revenue. Did Penn take the right strategic path? Or would building an alternative to a traditional Wharton education, costing less and being more accessible, cannibalize its core business? Or did Harvard make the right strategic moves? Or will Harvard eventually become like Barnes and Noble, suffering in its competition to Pennâs Amazon? Conversely, can both strategies work?
Asking the question is more important than determining the precise answer. As Clayton Christensen noted, disruption generally attacks the high end of the market last, so even if Harvardâs strategy were wrong, the mistake would not be known immediately. But, if both Harvard and Penn and other top-tier business schools have had to develop a strategy to address the development of online education, so too do most all the mid-tier and other schools of business, particularly as overall enrollments in traditional MBA programs, particularly part-time programs, drops (Nishihara and Everitt 2014) (figure 1.1). Of course, the same pressures that online education applied to business schools extends to all corners of higher education. All colleges and universities have to determine how they are going to compete given the new opportunities available online. Indeed, the growth of the new entrants into online education has been impressive. By the end of 2015, more than 35 million people had signed up for at least one online course through a MOOC provider. As significantly, MOOC platforms such as Coursera and edX were developing a successful business model by pioneering their own credentials such as nanodegrees (Udacity) and specializations (Coursera) (Shah 2015). Finally, MOOC providers began working with traditional colleges and universities to open the doors and lower the costs for more students, such as edXâs partnership with Arizona State University to create the Global Freshman Academy (GFA), which offers a full palette of university-level first-year courses online for $200 per credit. Total cost for one year of credit is under $6,000. Moreover, GFA has an open admissions policy. Anybody can attend (Lewin 2015). Earlier, Arizona State University had shaken up the academic world by concluding a deal with Starbucks in which the coffee chain offered all its employees full tuition to enroll in any of ASUâs 49 four-year, online degree programs (Howard 2015).
Online Education Is Decentralized
The majority of colleges and universities have some online courses or online educational programs available in some disciplines (Allen and Seaman 2013, 20). But in most cases, online program development at many institutions has been ad hoc, decentralized and episodic. Not infrequently, the online offerings in many universities are segregated in continuing education and professional development divisions and kept apart from the main academic enterprise. The impetus for creating online courses and online programs can come from many different stakeholders in the university ranging from individual professors to non-academic administrators and even, in some cases, boards of trustees, depending on the particular circumstances of each institution (King and Alperstein 2015). While most colleges and universities have at least begun to experiment with online education, few have created a systematic approach to online education or developed a strategy to address and manage the opportunities and challenges online education presents, especially as it relates to the traditional activities within the academic enterprise. A strategic planning process for online education can be particularly formidable, because every college and university has its own identity, a sense of self, history, development tradition and mission. Every college and university believes that it addresses the needs of specific student populations from defined geographical areas, even within particular programs, or perhaps schools that see the world as their geographic area. Ironically, five years before the launch of HBX, Harvard Business Schoolâs dean Nitin Nohria had been asked at a meeting of faculty and staff when the business school would begin offering online courses. New on the job, Nohria replied, âNot in my lifetimeâ (Nohria 2015). Since that time, the shape and nature of online education has changed. And as the debate between Michael Porter and Clay Christensen about the correct strategy for online education at Harvard Business School demonstrated, fashioning the correct response is complex. But one thing is certain. Every college and university needs to develop a strategy for online education that is compatible with its unique set of circumstances.
The Concept of Competitive Strategy
As Michael Porter observed in his seminal 1996 article âWhat Is Strategy, â in the 1970s and 1980s, Japanese automobile manufacturers grabbed a significant share in the United States car market, largely at the expense of the big-three U.S car makers, which had long dominated world markets. The âJapanese invasion,â as it was then referred to, shook the confidence of U.S. manufacturers. Not only were Japanese cars, which had been long derided since their entry into the American market in the 1950s and early 1960s as being poorly manufactured and cheap, now perceived to be superior in quality to American-made cars; they also cost less than U.S. brands. The big-three auto manufacturers were losing market share and were clearly on the defensive. But the Japanese success, Porter argued, was the result not of a superior strategy but of better operational efficiency, which leads to greater productivityâi.e., higher-quality cars at lower costs. Understanding the difference between operational efficiency and strategy is critical to successful planning. Operational efficiency is applied to the activities and groups of activities in which an organization engages. In a manufacturing business, for example, efforts at operational efficiency may be focused on the assembly line, the process of taking orders, or the link between orders and production. In higher education, operational efficiency efforts could target recruitment, student retention or the link between the two. Operational efficiency can lead to better outcomes, but, since others can learn the same techniques and processes, operational efficiency by itself cannot lead to a sustainable competitive advantage. Moreover, as competitors benchmark against each other, they begin to look more and more alike, and their distinctions fade.
An example in higher education of an operational change that can lead to a temporary advantage that cannot be sustained is the growth of SAT-optional admissions for undergraduates. Bates College was the first school to drop the requirement for a SAT test. It did so in 1969, and for nearly four decades just a handful of schools followed suit. But starting around 2010 more and more schools decided to go the test-optional route, and by 2015 approximately 850 colleges and universities no longer required standardized testing as part of the admission process, including major institutions like George Washington University and Brandeis University (Anderson 2015). The first schools that moved to an SAT-optional structure could recruit to a broader range of students who were otherwise qualified to attend but who, for whatever reason, did poorly on standardized tests. That advantage, however, has dissipated as other colleges and universities take the same route. As Porter observed, everybody can imitate operational improvements.
Strategy Starts With Positioning
According to Porter, an ongoing competitive advantage can be realized only if an organization does things differently. âThe essence of strategy,â Porter wrote, âis choosing to perform activit...
