1. THE RAPIDLY CHANGING ENVIRONMENT FOR HIGHER EDUCATION: CHALLENGES AND OPPORTUNITIES LLOYD ARMSTRONG UNIVERSITY OF SOUTHERN CALIFORNIA

2. “THERE’S A TSUNAMI COMING” JOHN HENNESSY PRESIDENT, STANFORD

4. GLOBAL WARMING THE RISING SEA LEVEL

5. GLOBAL CONTEXT BIG FORCES IN THE WORLD – GLOBALIZATION, GEOPOLITICS, DEMOGRAPHICS, ECONOMICS - ARE DRIVING MAJOR CHANGES IN ALL ASPECTS OF OUR LIVES DIRECTIONS OF THESE FORCES HAVE BEEN RELATIVELY CONSISTENT OVER TWO DECADES AT LEAST GENERALLY, GOVERNMENTS HAVE REDUCED POWER TO DO TRADITIONAL THINGS

6. GLOBAL CONTEXT GENERALLY LED TO GOVERNMENTS HAVING FEWER FINANCIAL RESOURCES WHICH IN TURN HAS LED TO INCREASES IN GOVERNMENTAL DEBT- NOW DELEVERAGING WE ARE MOVING FROM AN ERA WHEN GOVERNMENT SOUGHT TO IMPROVE WELFARE OF CITIZENS, TO AN ERA WHEN GOVERNMENT SEEKS TO IMPROVE OPPORTUNITY OF CITIZENS

7. GLOBAL TREND IN HIGHER EDUCATION “THE TERTIARY EDUCATION CONTEXT IN WHICH STUDENTS, PROVIDERS, AND NATIONAL GOVERNMENTS NOW OPERATE, IS CHANGING RAPIDLY AS A RESULT OF DEMOGRAPHIC TRENDS, THE COMPLEX EFFECTS OF GLOBALIZATION ON ECONOMIES AND SOCIETIES, AND A SHIFT IN THE ROLE OF GOVERNMENT IN PUBLIC SERVICES – FROM PROVIDER, TO FACILITATOR, REGULATOR, AND PARTNER.” UNESCO 2004 (emphasis added)

8. IMPLICATIONS FOR U.S. PRIVATE HIGHER EDUCATION PRICE

9. PUBLISHED PRICE VS FAMILY INCOME CPI CORRECTED, NORMED TO 1981

12. PUBLISHED PRICE VS FAMILY INCOME NORMED TO 1981, CPI CORRECTED

13. OPPORTUNITY ACCESS TO HIGHER EDUCATION VERY IMPORTANT TO PROVIDE OPPORTUNITY RISING COSTS RELATIVE TO FAMILY INCOME ARE DECREASING OPPORTUNITY NOT POLITICALLY ACCEPTABLE

14. VIEW FROM WASHINGTON: DEMOCRATIC SO LET ME PUT COLLEGES AND UNIVERSITIES ON NOTICE: IF YOU CAN’T STOP TUITION FROM GOING UP, THE FUNDING YOU GET FROM TAXPAYERS WILL GO DOWN. HIGHER EDUCATION CAN’T BE A LUXURY. IT IS AN ECONOMIC IMPERATIVE THAT EVERY FAMILY IN AMERICA SHOULD BE ABLE TO AFFORD. Barak Obama, State of Union 2012

15. VIEW FROM WASHINGTON: REPUBLICAN SINCE 1982, THE COST OF COLLEGE HAS INCREASED BY 439 PERCENT — DRAMATICALLY HIGHER THAN THE GROWTH EVEN IN THE COST OF HEALTH CARE. A ROMNEY ADMINISTRATION WILL TACKLE THIS CHALLENGE BY MAKING CLEAR THAT THE FEDERAL GOVERNMENT WILL NO LONGER WRITE A BLANK CHECK TO UNIVERSITIES TO REWARD THEIR TUITION INCREASES, AND BY SUPPORTING INSTITUTIONS THAT ARE PURSUING INNOVATIVE OPERATING MODELS TO DRIVE DOWN COSTS Mitt Romney – White Paper on Education

16. VIEW FROM PARENTS HATE THE COSTS GOING TO WRITE MY CONGRESSMAN

17. IMPLICATIONS FOR U.S. PRIVATE HIGHER EDUCATION QUALITY

18. QUALITY OVERSIGHT DRIVERS AS GOVERNMENT HAS LESS TO SPEND, IT BECOMES MORE DEMANDING IN THE QUALITY OF OUTCOMES IT IS BUYING AS COST OF HIGHER EDUCATION TO FAMILIES INCREASE, THEY BECOME MORE DEMANDING OF DEMONSTRATIONS OF BENEFITS PRESSURE WILL INCREASE TO DEMONSTRATE QUALITY OF EDUCATION SPELLINGS’ COMMISSION APPROACH CONTINUES UNDER OBAMA

19. EXISTING OUTCOME QUALITY MEASURES WE DON’T DO PARTICULARLY WELL – E.G. PASCARELLA AND TERENZINI, HOW COLLEGE AFFECTS STUDENTS; DEREK BOK, OUR UNDERACHIEVING COLLEGES ;ARUM AND ROKSA, ACADEMICALLY ADRIFT PEDAGOGY ISSUES

20. I THINK WE ACTUALLY HAVE A COST (=PRICE) PROBLEM, AND A QUALITY PROBLEM BOTH WILL NEED TO BE FIXED IN A RELATIVELY SHORT TIME PERIOD

21. UNDERSTANDING THE PROBLEM WHAT ABOUT OUR CURRENT MODEL DRIVES SUCH HIGH PRICE, AND SUCH LARGE ANNUAL INCREASES? WHAT ARE THE CONSTRAINTS ON FIXING THESE PROBLEMS?

22. COST AND COST INCREASE: COST COST AND LEARNING INEFFICIENCIES RELATED TO TEACHING E.G. – ACADEMIC YEAR – NATIONAL CENTER FOR ACADEMIC TRANSFORMATION CHRISTENSEN: HIGH OVERHEAD COST OF RUNNING MULTIPLE BUSINESS MODELS SIMULTANEOUSLY – TEACHING, SOCIAL GROWTH, RESEARCH – EACH SUBOPTIMIZED – OUR COSTS IN LINE WITH WELL RUN SIMILARLY STRUCTURED INDUSTRY (OVERHEAD=4-5) – FOR-PROFIT TEACHING ONLY – OVERHEAD 2

23. COST AND COST INCREASE: COST INCREASE COMMON FOR INDUSTRY WHERE MUCH OF COST IS IN HIGHLY SKILLED PERSONNEL CHRISTENSEN: “HEAD-ON, SUSTAINING COMPETITION AMONG COMPETITORS WITH COMPARABLE BUSINESS MODELS, WHICH LACK ECONOMIES OF SCALE, DRIVES PRICES UP 6 PERCENT TO 10 PERCENT PER YEAR IN NOMINAL TERMS” – “ARMS RACE” OF RESIDENCE HALLS, ETC. AND MISSION CREEP

24. COSTS AND COST INCREASES CONCLUSION CANNOT EASILY ATTACK EITHER HIGH COSTS OR RAPIDLY INCREASING COSTS WITHIN THE CURRENT MODEL NOT SIMPLY INEFFICIENCY OF HIGHER EDUCATION (ALTHOUGH IS A COMPONENT) SIGNIFICANTLY MANAGING COSTS REQUIRES DECREASING COMPLEXITY TO LOWER OVERHEAD PRICE/UNIT INCREASES TYPICALLY KEPT UNDER CONTROL BY FINDING ECONOMIES OF SCALE AND INCREASING SALES

25. ECONOMIES OF SCALE ONLINE LEARNING MOST DISCUSSED APPROACH CHRISTENSEN: COMPETE AGAINST NON- CONSUMPTION GROWTH IS IN LIFELONG LEARNING, NONTRADITIONAL STUDENTS – TRADITIONAL = 18-24, FULL TIME, RESIDENTIAL, SOME SUPPORT FROM PARENTS – ONLY 25% OF UG’S FIT TRADITIONAL LEARNER; 40% ARE PART TIME

26. TSUNAMIS SMALL AND LARGE

27. THE SMALL INFORMATION USED TO BE HARD TO GET – NOW IT IS EASILY FOUND FACULTY USED TO OWN THE INFORMATION THAT STUDENTS NEED – BUT THAT INFORMATION (AND MORE) NOW EASILY ACCESSIBLE INSTRUCTION GENERALLY HAS NOT SHIFTED TO TAKE ADVANTAGE OF THIS NEW PARADIGM – ALTHOUGH IMPORTANT FOR IMPROVING OUTCOMES

28. THE LARGE CURRICULUM USED TO BE HARD TO GET – HAD TO HIRE FACULTY – NOW IT IS READILY AVAILABLE – INCREASINGLY, AT ALL QUALITY LEVELS – OFTEN BUILT USING BEST PEDAGOGY PEARSON, MCGRAW-HILL OPENCOURSEWARE CONSORTIUM MITx, STANFORD, UDACITY

29. NEW OPPORTUNITIES FREE COLLEGE DEGREES – UNIVERSITY OF THE PEOPLE COMPETITIVE/SUPPORTIVE – STRAIGHTERLINE (1 ST 2 YEARS) EXISTING COLLEGES CAN USE THIS COURSEWARE TO CREATE A MUCH LOWER COST STRUCTURE (E.G. OPEN UNIVERSITY OF UK)

30. CHRISTENSEN GREAT COMPANIES FAIL WHEN THEY DO NOT CHANGE THEIR APPROACH TO FULLY EXPLOIT SOME POWERFUL NEW INNOVATION BEING USED BY NEW COMPETITORS IN ALMOST EVERY CASE, EXECUTIVES COULD SEE THE EXISTENTIAL THREAT OF THE INNOVATION, BUT DID NOT ADAPT

31. WHY? TO ADAPT MEANT CHANGING THE CHARACTER AND ORGANIZATION OF THE COMPANY EVERYONE HAD SUCCEEDED IN THE EXISTING ORGANIZATION TO THEM, STATUS QUO DEFINED QUALITY BUT THE PUBLIC’S DEFINITION OF QUALITY CHANGED TO ALIGN WITH THE NEW INNOVATION

32. US OUR PUBLIC IS SAYING THEY WANT LOWER COSTS, LOWER GROWTH IN COSTS, AND BETTER LEARNING OUTCOMES TO IGNORE CHANGING PUBLIC DEMANDS WOULD PRODUCE THE REAL TSUNAMI WE KNOW HOW TO MAKE ALL THIS HAPPEN – BUT IT IS LIKELY TO REQUIRE MAJOR CHANGES FOR MOST OF US HOW MIGHT WE PROCEED?

33. TEST INNOVATION CHRISTENSEN SHOWED THAT THE COMPANIES THAT DID MAKE A CRUCIAL TRANSITION USUALLY DID SO BY SETTING UP A “SKUNK WORKS” – TESTING AN INNOVATION FREE OF ORGANIZATIONAL RULES AND PREJUDICES – THEN ROLLING THE SUCCESSFUL INNOVATION BACK INTO THE COMPANY I BELIEVE THAT MITx IS A SKUNK WORKS

34. SUMMING UP THE RISING TIDE OF DISSATISFACTION WITH COST, RISING COSTS, AND POOR LEARNING OUTCOMES IS VERY DANGEROUS CORRECTING WILL REQUIRE SERIOUS CHANGES IN WAYS WE THINK AND OPERATE WE DO NOT HAVE A LOT OF TIME BEFORE THE WATER RISE BECOMES SIGNIFICANT

35. SUMMING UP THE TSUNAMIS ACTUALLY PROVIDE NEW OPPORTUNITIES SET UP SKUNK WORKS TO TEST HOW YOUR INSTITUTION MIGHT BEST BENEFIT FROM THOSE OPPORTUNITIES AND DO IT NOW