Disruptive Technologies: When Great Universities Fail?

Clayton Christensen's book, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail may have been read by more college and university administrators than any other business book of the last decade. It is easy to understand why, because there are some obvious parallels between the great firms that fail, and research universities.

Christensen looks at a very large set of corporations that were on everyone’s list of best run companies, leaders in their industry, that then lost their footing and in a very short time either disappeared or became almost irrelevant in their industry. He found that these companies failed because the management did a great job of analyzing their existing market, responded to the expressed desires of that market, and effectively allocated their investments to projects with the best return. They were so successful in handling the present that they were unable to see that innovations were occurring at the fringes of their industry that had the potential to completely restructure it. 

Christensen introduces the key concepts of sustaining and disruptive technologies. (It should be noted that he uses “technology” as a short-hand for both technology and business model.) Sustaining technologies are new technologies that enable the improvement of existing products along dimensions that traditionally have been valued by mainstream customers. Disruptive technologies, on the other hand, in the near term lead to worse product performance according to traditional quality metrics. However, these new technologies have some characteristics that are not found in the dominant technology, characteristics that appeal to some customers at the fringe of the industry.  Thus products using this new disruptive technology will initially perform less well than existing products on the metrics most appreciated by most customers, but will bring new attributes such as low cost, small size, or convenience that are sufficiently important to a small segment of the market that they are willing to forego some performance in order to get them. Often, the dominant firms are happy to give up these customers because the products they really wanted, being out of the mainstream, brought in lower profits.

However, technology can improve rapidly. So long as there is some customer base, there are resources to continue developing the disruptive technology. At some point, the disruptive technology improves sufficiently in the characteristics valued by the main market that it becomes competitive in that market with the existing technology. However, the disruptive technology also has the additional useful characteristics that enabled it to find its original market, and lower cost is usually one of those characteristics. At this point, the disruptive technology becomes more desirable to the mainstream market than is the traditional technology, and the value metrics of the field change rapidly towards the new technology. Mainstream customers demand products built with the disruptive technology, and in a relatively brief time the traditional technology and the companies that were wedded to that technology disappear or become marginal.

Christensen discusses in detail the difficulties that established companies have in embracing a new disruptive technology. Few are able to do so, and so sink into relative irrelevancy or bankruptcy. Part of the problem is just the desire to hold onto a highly profitable strategy as long as possible. Small but growing markets cannot generate sufficient profits to satisfy growth needs of large companies. Another problem is that the entire established company was structured around making the original product, which had a huge market and was probably larger, more expensive, more complex than the new product. The corporate infrastructure and cost structure, from factories to administration, was inappropriate to follow a radically different model where the market was small but growing, and the product might be very different from the existing product in size, complexity, and cost. In addition, market research on markets that don’t exist is not really possible. As a result, the traditional companies were unable to convince themselves following accepted “good management” approaches that there would be a large market for the disruptive product.

The apparent parallels between conditions in higher education and the industries discussed by Christensen are disquietingly obvious, and explain why so many university administrators bought copies of this book to give their colleagues. Traditional colleges and universities control most of the market, using techniques and value propositions that most often date back centuries. However, innovation is occurring at the fringes. Technology breakthroughs of the last decade have enabled potentially powerful web-facilitated, technology-enhanced distance learning. Numerous for-profit institutions of higher learning have started up, or greatly extended their existing programs, using both distance learning and brick-and-mortar approaches. On the non-profit side, some non-traditional models such as the Open University have been growing rapidly in acceptance.  In almost all cases, the response of traditional higher education has been that these approaches are inferior to what we have been doing, suitable only for students of the type that we are not terribly interested in serving. Yet one can see that in many ways a number of these non-traditional institutions have, indeed, improved significantly over time according to our mainstream metrics, just as would be predicted by Christensen.

 Perhaps the greatest new disruptive attribute that the model of the new competitors brings is convenience for, and service to, the students. Classes are taught at multiple sites and on schedules chosen for convenience for students, or are offered 24/7 on the web. The rigidity of the semester system has been jettisoned in many cases, and students can follow courses year round in order to speed up their education. Considerable attention is paid in the best of these to student placement (including having panels of potential employers helping to define educational needs) and advising. In the best, considerable attention is also paid to teacher performance, and poor teachers are rotated out rapidly. New courses are quickly brought on line in response to changing demand. Some few of these institutions are using the results of cognitive learning theories to structure their courses in order to improve learning – something that would be quite unusual in most research universities. The education has become learner-, rather than teacher-centered.

Another important disruptive attribute is low cost and scalability. I wrote in For Profit and/or Non-Profit future, Feb.20, 2006 and Competitive Higher Education, March 3, 2006, about the research university’s interlocking missions of research, teaching, and social development of its students. The new competitors pick off only one of these missions, teaching, dropping off the very expensive components of research and social development of students ( this latter has led us to build and support residence halls, fancy gymnasiums, dining facilities, intramural sports, football teams, etc.). As a consequence, the new competitors generally need only teaching facilities (with administrative facilities somewhere, but most often centralized and not tied geographically to the teaching facilities), and these they often rent. Faculty are not research oriented, and thus move in a much less expensive competitive market than the faculty who are hired at research universities. These faculty essentially are never tenured, and thus the size and specialties of the faculty can easily be changed in response to student demands in order to minimize costs and maximize profits. Because courses are usually designed centrally and used at multiple sites, additional students can be taught with minimal marginal cost. Where distance learning is used extensively, scalability is even more evident.

So is this a new disruptive model that will wipe out traditional research universities?  There are reasons to believe the results will not be that cataclysmic. There are “moats” that protect research universities to some degree, as I discuss in Competitive Higher Education, March 2, 2006. Among the most enduring of these is the credentialing power of an established, high reputation university. Also, as I point out in How about distance learning ?, March 3, 2006, distance learning itself can be both a sustaining and disruptive  technology. It is sustaining because it enables us to improve upon our educational product. It becomes disruptive if it exacerbates the winner-take-all (Robert Frank and Philip Cook, the Winner-Take-All Society ) tendencies of higher education. It is also potentially disruptive because it changes the power relationship within universities because it greatly increases student options. The greatest disruptive risk, in my opinion, comes from the political arena. As we move more into a market-state (Welcome to the Market-State, Feb.20 ,2006), government will be looking much more closely at the impact of its support of higher education. As our competitors move up in quality, their lower cost will be quite attractive to legislators who want to be able to claim credit for having made higher education accessible to all. We then will see a number of legislative changes that serve to “level the playing field”, as in forcing acceptance of transfer credits and opening up accessibility to federal student funds. Ultimately, the government could question whether the high cost integrated research university is the least expensive model to achieve the goals of research and teaching.

If the new models are disruptive, can we embrace them more effectively than the corporations Christensen studied? Although any major change is difficult for universities, we are benefited in this instance by not having a profit motive. As Christensen shows, much of the difficulty for corporations in making change relates to the necessity to keep growing in profit, which discourages attention to any venture that has a low profit margin.  For better or for worse, we have lots of ventures that have a “low profit margin” – think of Classics. However, we have our own obstacles to change that corporation’s lack. To really turn to a more learner-centered approach will require major changes in university culture (I will talk more about learner-centered education in a later post).  Simply changing away from our rigid semester or quarter system will be difficult enough. We also do not have a tradition of strong cost-cutting of the type that corporations have had to embrace over the past decades, and our inability to keep our expense differential from continuing to widen will eventually cause problems with parents and politicians.

As we go forward, the outcomes described by Christensen give us reason to avoid overconfidence, and his ideas give us a useful structure for analysis.