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The Learning MarketSpace, April 1, 2000

Written monthly by Bob Heterick and Carol Twigg, The Learning MarketSpace provides leading-edge assessment of and future-oriented thinking about issues and developments concerning the nexus of higher education and information technology.


Recent announcements by several well-known institutions of higher education that they are forming for-profit subsidiaries to deliver distance education is yet another sign of the transition of higher education to a more market-driven, commercialized existence. This transition has not been caused by advances in technology, but it has certainly been exacerbated as a consequence of them.

For the past 40 years, generally under the cloak of some form of foundation, universities have begun to create for-profit subsidiaries to handle patent income, develop and operate research parks and generally engage in businesses that avoid the appearance of competition with private enterprise in the local community. This activity has typically been ad hoc and not driven by an conscious policy other than the base instinct that developing additional sources of revenue was somehow "good" for the institution.

During this same time period, we have witnessed significant growth in the fund-raising activities of institutions. Large endowments with significant capital appreciation are a relatively new phenomena in higher education. Particularly with state-assisted institutions, the accumulation of capital or an excess of revenue over expenditure has been a hallmark of this transition. So much so, that many public research institutions have reached the point where state assistance represents a minor (but still important) portion of their operating revenue.

It is not at all uncommon to find the Trustees of those institutions focused on the fund-raising capabilities of candidates during presidential searches. Judging from news reports and anecdotal evidence, the major portion of presidential time is spent in fund-raising as each capital campaign is followed very quickly by a new, and even larger campaign.

It is getting very difficult to tell the players, even with a scorecard. We used to have not-for-profit institutions of higher learning, some of which were privately supported and some of which were publicly supported or at least publicly assisted. Then we witnessed the beginnings of for-profit, commercial entities offering higher education. Now we have closely held subsidiaries of not-for-profit institutions offering for-profit educational opportunities.

This is not intended to be a Jeramiad lamenting the involvement of profit-making entities in higher education, but rather to raise the question of the implications of not-for-profit educational organizations forming for-profit subsidiaries to deliver education. The creation of for-profit subsidiaries to market intellectual property, operate research parks, and now, to deliver education, raises more than a few questions about the general structure of higher education in the United States.

This really shouldn't be too surprising. When we began this publication, we observed that we would track the signals of the transition of higher education from public and/or philanthropic support to a marketplace, competitive enterprise. We have to confess that we didn't think it would come quite so quickly or nearly so boldly.

With the growth of graduate education and a shift in student demographics away from the traditional, resident, 18-22 year old, institutions need to confront their organizational raison d'etre. Just as institutions of higher learning shifted from religious to state support in the mid-1800s, we are witnessing a shift from state to private support to commercialization in the 21st century. Absent a clear understanding and a well thought-out plan on the part of Trustees and legislatures, this shift is likely to remain murky, undirected, and frequently, controversial.

A successful subsidiary delivering distance education will require a level of research and development uncharacteristic of institutions of higher education. One reason frequently proffered for higher education's general failure to invest in research and development of its mainstream instructional delivery function is its not-for-profit status. In this regard, the establishment of for-profit subsidiaries may signal a rational approach to the creation and investment of R&D dollars.

However, there is nothing to suggest that institutions of higher learning possess the skill set, management flexibility, or entrepreneurial reward structure to be successful in the creation and maintenance of customer-attractive, asynchronous learning products. Many institutional administrators naively equate the posting on the web of a course syllabus and some instructor developed notes with the effort required to produce successful distance learning environments. Many faculty, equally naively, assume that to post their lecture notes on the web is to lose control of (and the financial benefit from) valuable intellectual property. Most faculty I know have trouble getting their word processor to work consistently. To think that they will, in their spare time, develop compelling, micro- immersion learning environments for remote learners is naive in the extreme.

Such learning tools will be developed, and some by faculty currently in institutions of higher education. But absent major R&D investments, forgoing the master teacher paradigm in favor of design teams with broad skill sets, and new compensation strategies, it is highly unlikely that our current institutions of higher education will be the developers of such tools--even in a for-profit subsidiary. What seems to be clear is that for-profit is not synonymous with entrepreneurial. To be seriously in the course development and distribution business, institutions of higher learning will need to be entrepreneurial.

While these restructuring attempts by institutions of higher education, no Matter how modest or faltering, at least demonstrate an awareness that the status quo is not likely to be successful in the age of the Net, our reaction is somewhat the same as that attributed to Mark Twain upon first hearing Wagner--it's better than it sounds.



Several years ago, we started talking about how investments in information technology could improve academic productivity in higher education. At that time, most folks in our community were of a mind that improving student learning while reducing instructional costs was more or less impossible.

Five years ago, most economists would probably have agreed with a viewpoint commonly referred to as the "productivity paradox." Simply stated, despite investing more than a trillion dollars in IT, U.S. businesses had almost no measurable productivity increase to show for it. Today's booming e-economy has pretty much put the productivity paradox to rest—except in higher education.

As a way to explain the productivity paradox, Stanford economics professor Paul Davis has drawn a parallel with a remarkably similar historical puzzle. Although Thomas Edison invented the carbon filament incandescent lamp in 1879, it took nearly 20 years before electricity began having any significant impact on society. Between 1900 and 1920 the percentage of U.S. factories equipped with electric motors jumped from five percent to 55 percent. Yet, despite the obvious advantages of electric motors over steam engines, worker productivity showed almost no measurable increase.

Back then, a state-of-the-art facility was a three- or four-story brick building. A coal-fired steam engine sat in the factory's basement; its power was transmitted to the equipment on the floors above through an elaborate system of vertical and horizontal shafts and drive belts. Electric motor technology was indeed revolutionary, but to pay for itself it had to be grafted onto the existing industrial infrastructure. Since the entire infrastructure had evolved around the assumption of expensive steam power, factories were grossly inefficient in other dimensions. Once made, these fundamental economic trade-offs endured for decades in bricks and mortar.

It wasn't until cheap, small electric motors became available in the 1920's that factories began to abandon "group drive" power for the "unit drive" approach that is used today, to rip out their drive shafts and belts, to rearrange their machines and to re-design their flow of materials. Innovative firms were the first to go all the way and take the radical step of building single-story factories. Forty years after Edison's original inventions, productivity growth took off.

Michael Rothschild has, in turn, applied this lesson to today's office environment. As new communications technologies link the previously isolated power of microprocessors, the cost of delivering the right information where it is needed collapses, allowing completely new work flows and organizational infrastructures to emerge. Even though in a paper-based world it made economic sense to minimize communication costs by co-locating workers in urban office towers, in the world of e-mail, faxes and teleconferencing, the costs of that infrastructure have become a waste of money. As a result, all our sacred assumptions about the nature of organizations are being overturned. Like our predecessors in the early 1920s, we are being forced to rethink all the old trade-offs and invent new designs for our working lives.

The parallels in higher education are clear. Like our predecessors in the 1920ís, heretofore we have grafted information technology onto our existing infrastructure. We wired the campus, electrified the lecture hall, automated the card catalogue and the course registration process. But while spending ever-increasing portions of our budgets on IT, we continued to operate more or less as in the past, asking the same staff to do the same things in the same ways. Five years ago, we had not yet begun to rearrange our machines and re-design our workflows.

Today, however, we are beginning to see significant activity on several pioneering campuses that have the potential of putting the productivity paradox in higher education to rest at last. Visionary faculty, with encouragement and support from administrative staff, are inventing new instructional designs that enable them to serve students at a lower cost and serve them more effectively. These campuses are transferring some of the tasks traditionally performed by faculty and other instructional personnel to technology-assisted activities, the key to cost savings in instruction. As Lewis J. Perelman pointed out in a 1991 Business Week article, "We know from the extensive experience of office and factory automation that roughly 80% of the productivity gains from technology innovation come not from new hardware or software but from fundamental changes in management, organization, and human resources."

With support from the Pew Grant Program in Course Redesign and the Sloan Program in Learning Outside the Classroom, these institutions are developing a variety of instructional models that reduce costs and improve student learning. In one approach, student enrollments stay the same but the instructional resources devoted to the course are reduced. This makes sense when student demand for a particular course is relatively stable. UW-Madison intends to maintain the same student enrollment in their general chemistry sequence while reducing course expenditures, thus decreasing the cost per student by 28 percent. Because this course affects 4,100 students per year, this translates to an annual saving of approximately $295,000. Penn State is redesigning elementary statistics to achieve a 30 percent reduction in costs. Early results of their activities indicate that they will achieve even greater savings, more than $116,600 annually.

A second approach is to increase enrollments with little or no change in expenditures. This technique is appealing to institutions that face greater student demand than can be met using conventional methods. The University of Illinois at Urbana-Champaign plans to increase enrollments in Spanish courses with little or no change in expenditures, resulting in a reduction in the cost per student from $200 to $101. Given the high student demand for Spanish courses, the university would not be able to serve its students adequately without this redesign.

The University of Southern Maine's redesign of its introductory psychology course will increase the number of students per section from 75 to 125, resulting in a planned 49 percent cost-per student reduction. The university will redirect faculty resources to developing a distance-learning program to increase service to the state's citizens. Rio Salado College has significantly increased enrollments in four introductory mathematics courses offered in a distance-learning format. Designed by using high- quality software from Academic Systems, four math courses are managed simultaneously by one instructor with support from student assistants. The redesign will result in a projected cost-per-student reduction of 41 percent. Early indications are that student numbers can be increased significantly beyond Rio's first projections. Returning to our factory analogy, it wasn't until relatively inexpensive, networked computers became available in the late 1990's that college and universities were able to abandon the one-size-fits-all lecture method for the new individualized, interactive approaches that are being used today. In essence, these institutions are ripping out the pedagogical equivalents of drive shafts and belts; they are rearranging their machines and re- designing their flow of materials. Forty years after the introduction of computing in higher education, productivity growth is finally beginning to take off.




Seminar: Tuesday, April 18, 2000, 8:30 am-4:00 pm
Product Demos: Monday, April 17, 4:00-7:00 pm
Location: The Westin Horton Plaza, San Diego, California

Moderators: Bob Heterick and Carol Twigg

More and more companies are entering the higher education market, providing new and different approaches to supporting your teaching/ learning efforts. This workshop provides a rare opportunity for you to compare and contrast commercial offerings in an impartial environment and to gain an overall understanding of the industry.

  • Learn in one day what would take you many to find out on your own.
  • Identify potential partners for developing new learning environments.
  • Meet your colleagues who are wrestling with the same set of issues.
  • See product demonstrations (optional activity on April 17).

Featuring moderated discussions with:

  • Blackboard Inc.
  • Eduprise
  • SCT
  • WebCT

If you are involved in decisions regarding expenditure of funds for teaching/learning services and products, you can't afford to miss this workshop!


April 26 - 27, 2000 Washington Duke Inn & Golf Resort, Durham, North Carolina.
Sponsored by Eduprise.

This invitational seminar will provide Chief Executive and Chief Academic Officers an opportunity to develop a strategy framework for e-Learning that is attuned to institutional resources and goals and open to commercial and nonprofit partnerships as a means to achieve focus and a favorable return on investment. Participants will interact with peers and nationally recognized speakers to discuss assessing organizational readiness to implement an effective e-Learning program; planning, developing, implementing, and evaluating e-instruction; linking IT investments to strategic academic goals; insourcing versus outsourcing; and finding an appropriate balance between a virtual-campus instructional program and virtual enhancements to traditional classroom-based instructional programs.


  • Robert Atwell, Past President, ACE
  • Jan Baltzer, Consultant, Baltzer-Sutton Associates
  • Bill Graves, Chairman and Founder, Eduprise
  • Ron Legon, Provost, The University of Baltimore
  • Jane Ryland, Past President, CAUSE
  • Mary Beth Susman, CEO, Kentucky Commonwealth Virtual University
  • Carol Twigg, Executive Director, Center for Academic Transformation

There is no registration fee to participate in this thought provoking two-day session.


June 15, 2000, Chicago, Illinois
Moderators: Bob Heterick and Carol Twigg


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Archives of The Learning MarketSpace, written by Bob Heterick and Carol Twigg and published from July 1999 – February 2003, are available here.

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Copyright 2000 by Bob Heterick and Carol Twigg.