The business model of research is winner-take-all. Is it killing higher ed?

By:

Aug 13, 2019

The international perception of US higher education can be pared down to three words: Harvard, Stanford, and MIT.

But that’s not the reality of US higher education. These institutions serve a tiny fraction—0.258%, to be exact—of the nearly 20 million students enrolled in higher education across the country. These three schools have world-class research production, exceptional graduation rates, and strong student outcomes in terms of graduation and job placement. The rest of higher education has copied their business model—to ill effect.

Why is the business model of elite institutions breaking down for most of the country’s colleges and universities? And does this breakdown signal a need to shift priorities both in how a majority of institutions serve students and in how systems evaluate the value of those institutions?

Higher education is a conflation of business models

As Michael B. Horn, Clayton M. Christensen, Louis Soares, and Louis Caldera first argued in Disrupting College nearly a decade ago, higher education has conflated multiple businesses. Simply put, the business model of knowledge creation (research) coexists with the business model of knowledge transmission (teaching)—to say nothing of ancillary activities like social networking and alumni fundraising that have business models of their own. 

At elite schools, this coexistence is synergistic: ultra-elite academics conduct prize-winning research which attracts top students, as well as research grants and donations from wealthy alumni. It’s a virtuous, coherent model that enables top institutions to be generous with financial aid, ostensibly meritocratic, and attractive to the world’s best thinkers and learners. 

Looking downstream, to a wider, more typical set of postsecondary institutions, the coexistence of these models is more fraught. The world’s best students that often attend elite institutions are academically prepared for college and hypermotivated. But this isn’t representative of the overall college-going population. Only a tiny fraction of 12th-grade students—25%, to be exact—are proficient in math and only 37% are proficient in reading. Remediating these gaps once students enroll in college is intense and expensive—and means that non-elite institutions have to focus more, not less, on high-quality teaching. 

In higher education overall, hiring and promotion practices for professors often don’t favor teaching, however. There is no “instructional quality” analogue to “publish or perish”. Professors at many institutions receive relatively little training in effective instructional practices; advising is often not evaluated at all. Teaching and researching are essentially two different jobs; professors must do both. If professors at elite schools are unfocused or untalented at teaching, well-prepared, hyper-motivated students can still fare well. But at non-elite schools, students bear the costs of bad teaching. 

Knowledge creation is winner-take-all

While many institutions attempt to balance research and teaching, the gains of research are not spread evenly. There are only six Nobel prizes every year—Harvard-affiliated researchers have won 60 of them since 2000. Half of total R&D expenditures are made by a mere 45 schools. Over 80% of business school cases used worldwide are produced by Harvard Business School faculty. Knowledge creation is a business model with many participants, but only a few winners.

“Winner-take-all” markets were first described by Sherwin Rosen in a 1981 article for the American Economic Review, observing that “In certain kinds of economic activity there is concentration of output among a few individuals, marked skewness in the associated distributions of income and very large rewards at the top.” In these types of markets, small differences in abilities or talent mean big differences in returns or income—Rosen titled his paper, “The economics of superstars.” Academic research fits this market dynamic, both in the flow of dollars, as well as in the flow of information. The most cited research paper—a 1955 piece on proteins in solution by Oliver Lowry—has been cited over 300,000 times, but much of academic research is never cited at all.

Winner-take-all markets are facilitated in part by technologies that enable the work of one person to be consumed by many. The printing press is one such technology—textbooks were one of the examples cited in Rosen’s first paper. The internet is another, further commoditizing information of all types—including this blog, which competes for eyeballs with the four million hours of content uploaded to YouTube every day. Some evidence—like this data from the NSF—shows that research dollars are not only concentrated in the hands of a few, but that the market for R&D dollars is becoming steadily more concentrated over time. Because elite schools concentrate talent, facilities, and dollars, research revenues continue to flow largely to elite institutions. 

Thousands of schools are replicating a model that doesn’t work for them—or for their students

Knowledge creation remains critical for driving advances in science and technology and pushing the human conversation forward. And for a small fraction of institutions, knowledge creation is a critical element of a highly synergistic business model. But at most institutions following the leaders—or what higher ed nerds refer to as “isomorphism”— creates complexity and costs, rather than significant revenues. At most institutions, trying to do both knowledge creation and knowledge transmission is bad for business—and bad for students. 

This means that when it comes to long-term viability, most institutions are solidly in the knowledge transmission business, regardless of whether they aspire to something else. Their revenues come from students, not the NSF. Our current sense of “world class” institutions is largely based on which institutions excel at research. But perhaps a new ranking system is in order, one that evaluates schools based on their excellence in transmitting knowledge. This focus on teaching and learning would be a new competitive trajectory for higher education, which has historically been focused on prestige. Competing to excel at teaching and learning would demand an increased focus on assessment, and on using data to iteratively improve curriculum and the classroom experience. 

These institutions would be well served if they simplified their business model, and prioritized what they really do: teaching students. But focusing in on knowledge transmission calls radical questions onto the table, for institutions, as well as for accreditors. Who should teach? Should they have tenure? Are PhDs necessary? What training in educational methods should professors have? How should schools make promotion decisions? Do schools need to develop their own curriculum or are they better off buying it?

These questions are fraught, but they are important, especially in the current climate of anxiety around the cost—and value—of college, as well as troubling skills gaps. Institutions that grapple with them and innovate effectively can start optimizing their resources in a time when the university business model is breaking down. But more importantly, these institutions can better serve the millions of students who are signing up to have knowledge transmitted to them. 

Alana leads the Institute’s higher education research and works to find solutions for a more affordable system that better serves both students and employers. In this role, Alana analyzes disruptive forces changing the higher education landscape.