North of Toronto is a hospital called Shouldice that repairs only external abdominal wall hernias (yes, I promise that this will be about higher education). This specialty hospital has built its business model around a very specific value-adding process activity. In general, organizations with value-adding process business models take incomplete or broken things and then transform them into more complete outputs of higher value while charging a fee for the outcome. At Shouldice, everything from the preadmission preparation to the surgery to rehabilitation to discharge is integrated and optimized for the one focused job of hernia repair. The entire cost of the procedure is 30 percent lower than the standard reimbursement given for comparable hernia repair in the U.S., and the likelihood of complications afterwards is 0.5 percent versus the standard five to 10 percent in outpatient general hospital care. Shouldice is not the only hospital of its kind. In India, the Aravind Hospitals focus on eye surgery, and in Finland, the Coxa Hospital does hip and knee replacement surgery only. These focused hospitals build businesses specifically around what happens after the initial diagnosis. They offer a narrowed set of surgeries at substantially reduced costs with ultimately higher levels of quality.
These examples stand apart from the general hospitals to which we’re more accustomed. General hospitals typically house both solution shop business models and value-adding process business models under the same umbrella organization. The medical practice of diagnosis, or what we call intuitive medicine is a solution shop model, structured to diagnose and solve unstructured problems while charging a fee for service. General hospitals offer the diagnosis as well as the procedure and therapy that follow. A generation ago, it made sense to have general hospitals that could do everything for everybody in the community, as transportation was expensive and also risky for patients. Now the economic and technological constraints have changed. Doctors and equipment are more expensive, and transportation is more affordable and accessible. Despite these changes, the health care industry has remained relatively static. We continue to house multiple business models in a general hospital even though it makes more sense to have focused hospitals serve as hubs for specific illnesses and procedures.
There is a similar lack of business model innovation in higher education. Despite major environmental shifts and mounting pressures, most traditional institutions house three different business models under the same umbrella: research is organized into a solution shop model; teaching is done as a value-adding process activity; and universities run a multitude of facilitated networks, within which students work with each other, career staff, or even alumni to succeed and have fun. In other words, they offer three very distinct and often conflicting value propositions around knowledge creation, knowledge proliferation, and preparation for life and careers—all bundled together.
In order to deliver each distinct value proposition, a whole set of resources, processes, as well as a profit formula need to be coordinated. Doing that three times over and juggling them under the auspices of one organization? Well, you can imagine how immensely challenging that can be. It is no small feat to achieve stability and maintain revenue in this complicated mixture of elements.
The problem is that as external pressures and financial exigencies mount, many of the nearly 4,000 universities and colleges in the U.S. will not be able to continue this juggling act. The strain of this broken business model of higher education will prove to be too much. Some will have to make the very difficult decision of focusing on a single value proposition.
Such streamlining can have its benefits. Many fully online education providers focus solely on teaching. In the process, they have done away with tenure, committees, and research while also subdividing the teacher’s role. A single instructor is no longer pulled in multiple directions: the person who teaches the online course is different from the person grading the students’ work; these instructors are also different from the people responsible for coaching and mentoring the students along in their academic careers.
Many traditional colleges could take a cue from these innovators. In a recent interview about his book on excellent community colleges, Josh Wyner acknowledged that community colleges can learn from some of the strategic practices of for-profits. Profit goals and student goals are aligned when schools take “professors with the highest retention rates in upper-division classes and assign them to entry-level classes. They even pay more for teaching intro classes. This, of course, is the opposite of what happens in most traditional colleges, where professors with seniority opt out of teaching entry-level classes.” Certainly, most schools will resist the notion of embracing new models (particularly those of for-profits) that seem to fly in the face of everything that they have done in the past.
Nevertheless, instead of letting “threat rigidity” kick in and doubling down on the status quo, institutions should investigate more deeply what they mean when they seek to preserve the culture of the institution. Is it really culture or what I like to call an embedded inefficiency? Time and precedence tend to normalize processes that might have been jury-rigged in the past as workable solutions; they become reified with the passage of time. In turn, those within institutions accept or become habituated to these constraints as the culture, or the way things have always been done.
The future of many postsecondary institutions will depend heavily on business model innovation and reinvention. Schools will need to confront what has become in many cases a normalization of embedded inefficiencies. Not all colleges and universities will be able to continue to balance three different business models within the same organization. Simplification and a deep exploration of what it means to be a focused school will likely be a driving force in the re-imagination of the business model of higher education.