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May 15, 2017

Blurring The Lines: The Merger of For-Profit and Not-for-Profit in Higher Education, A Technology and Market Driven Event

Over the past several months, there have been multiple announcements within the higher education community that might not have made national headlines, but were still significant enough to indicate a real blurring of the lines between for-profit and traditional, not-for-profit institutions. There are a lot of emotions and opinions on all sides about what this muddling means for the industry, students, and faculty, but I’m not going to delve into the politics and optics behind it. Instead, I will focus on the overall digital trends for education, and how technology-driven disruption is dramatically changing the industry, operations, and strategy for every institution.

I believe that these announcements have been prompted by (a) a post-secondary market demanding broader and more cost-effective programs, and (b) a level of technological sophistication and advancement that now enables high quality, immersive and successful educational experiences for students and faculty alike. The online and distance learning portion of the higher education market was once dominated by the for-profit segment, from the likes of University of Phoenix to Kaplan, but given all the advancements in technology and the harsh economic reality facing everyone, well-known, traditional institutions are turning their full attention, resources, and brands toward expanding their digital offerings.

The most significant announcement yet came from Purdue and Kaplan at the end of April. “Purdue University’s acquisition of Kaplan University is an unexpected tectonic shift in American higher education, revealing both the changing roles of public universities and the dwindling fortunes of for-profit colleges,” wrote Paul Fain and Rick Seltzer in Inside Higher Ed. I believe we are entering the next digital maturation phase for higher education.

In March 2017, I posted an article titled, “At An Unprecedented Time for Higher Education, Software Companies are Failing the Industry,” in which I discussed the critical need to face digital disruption head-on, and how institutions need to make digital strategy part of every strategic and operating plan, instead of making it an “IT” thing. I also addressed how pioneering, digitally sophisticated institutions are going to gain an outsized portion of the prospective future student population, and just like Penn State World Campus, Purdue University is making strong moves to expand its presence and reach. This merger has very little to do with “for-profit” and everything to do with expansion—global brand growth to deliver world-class, high quality education, fueled by incredible advancements in technology, and robust digital experiences.

“Software used to be the bottleneck and now it’s overtaking everything. It has become a compound multiplier of Moore’s law” – Thomas Friedman, Thank You for Being Late

“Software…it’s overtaking everything” is the most poignant part of Thomas Friedman’s quote from his outstanding new book, Thank You for Being Late, in which he discusses the dramatic impact that technology is having on every aspect of our lives, and how the compounding nature of Moore’s Law is impacting us faster than human nature will allow us to fully comprehend and adjust. Software is now being written via new processes (Agile and Scaled Agile) and technologies (GitHub) that accelerate development, providing more global and faster value realization than ever before. Although many in higher education hold on to the belief that their industry is immune, recent announcements make it clear that something is afoot:

  1. Purdue’s Acquisition of Kaplan University
  2. ITT Technical Institute and Corinthian Colleges Loan Discharges
  3. University of Phoenix sold to private investors
  4. Grand Canyon University attempts to go nonprofit
  5. Education Management Corporation sold to the Dream Center Foundation
  6. ECMC Group bought Corinthian and created the Zenith Education Group

These developments indicate a downward trend for the for-profit segment that is struggling to maintain healthy balance sheets in the face of stiffer competition from brand name institutions and a savvy, value-based prospect pool. Having a program, school or institution as online-only is no longer good enough to guarantee growth. Savvy education consumers are looking for the most convenient and best price from the best brands so lesser known, online-only institutions will need to provide a more advanced, industry-leading digital experiences, otherwise, they will have to come up with another value proposition. Economic and investor realities demand strong year-over-year profit growth, regardless of investment type or industry, and the for-profit institution who is falling short of return expectations must figure a way forward or risk losing its financial backing.

Impact – Brand and Quality Matter

All else being equal, the current crop of for-profit institutions will continue struggling to compete with globally recognized brands like Purdue, Penn State, Arizona State, and Georgia Tech—and these are early entrants, with many more major players taking notice. What you’re seeing is the early second stage of technology and digital transformation of higher education. The first stage, like any early market creation/expansion, was driven by entrepreneurial types building businesses by leveraging the latest technology to provide education to a new market segment: students looking for a degree who–due to life circumstances–could not attend in person, or could not afford the full-time cost. Many of these new institutions achieved outsized admissions growth and revenue; however, some large, well-established, traditional institutions were paying close attention, studying whether and how this market would evolve.

Now comes the second stage, which has just begun in earnest with the Purdue/Kaplan announcement. When you look closely at the details of the agreement, which still must undergo regulatory scrutiny before it’s approved (no small feat), Purdue could realistically grow to more than 70,000 students, with more than 40% (or 30,000) enrolling online only, while also increasing its average student age from the current 20, by adding Kaplan students who’s average age is 34. What’s not abundantly clear from the headlines, with their emphasis on emotion and fear, is that Purdue just bought a mature, digital presence, know-how, and infrastructure for $1 (yes one dollar!). When you combine that with the fact that Purdue is best known as an engineering school, it clearly sees an opportunity to establish its future growth by being good at being digital.

To explain why the university was acquiring an online for-profit chain, Daniels cited the 36 million working adults in America who are over the age of 25 with some college credits but no degree, 750,000 of whom are in Indiana. Another 56 million Americans over 25 have no college under their belt.

Inside Higher Ed, “Purdue’s Bold Move

What’s Next – Prediction

The digital disruption in higher education is accelerating, and most institutions will either adapt or face the prospect of being a much smaller player in the higher education marketplace.  According to a Moody’s report published in 2015, the small-college closure rate is expected to triple in the coming years.

Although these predictions are already a couple years old, professional economic and market analysis indicates that the higher education market is undergoing incredible disruption, putting its current operating model under intense pressure. The reality is that with every industry, including computer software, digital disruption will force significant changes in strategy and operations, and higher education institutions will need to do things differently to survive and thrive in this market.

Instead of looking at IT as a service organization that handles technology trouble tickets, senior administrators and P&L center owners must intimately understand all technology investments, and incorporate digital strategy into everything they do. Institutions need to seriously consider expanding the roles within their departments to include digital product management, digital transformation, and enterprise-wide architecture professionals. Product Management and Enterprise Architecture are strategic roles that bridge the gap between educational operations and technology execution. To put it another way, through its merger with Kaplan, Purdue is essentially evolving from a traditional, in-person education institution to a global, digital education service provider.

Whether through acquisitions or via organic growth, leading institutions will need to develop digital capabilities and expertise in coming months and years. Professional product management, digital transformation, and architectural experience will be pivotal to any institution seeking to flourish in the future digital education marketplace—where in-class and online will become increasingly seamless.

At Higher Digital, we specialize in helping higher education institutions and industry software companies forge their digital and product strategies and determine how to deliver and execute on their priorities and technology investments in the most effective and efficient way regardless of size. Based on our current engagements with leading institutions, it’s clear to us that every department and every person is affected in a profound way – from admissions to alumni relations. The reality is that larger institutions have more resources, enabling them to move quickly, so smaller institutions must start making digital strategy a core strategic priority or else risk being completely unprepared for the onslaught of technology and digital disruption that is coming.

We are seeing first-hand, the acceleration of the global higher education market as it embraces the latest technologies to reach more students while still maintaining a high-quality education experience; however, almost everyone we encounter, regardless of for-profit or not-for-profit status, struggles with how best to incorporate technology and digital strategies and investments into their current planning, operating, and delivery models. This is where our years of experience can help… we can provide guidance and expertise on your digital strategy and how best to execute it

Disclosure: As a product executive at Ellucian, Wayne worked closely with Purdue University leadership on the product called “Course Signals.”

Wayne C. Bovier is CEO of HIGHER DIGITALTM, LLC., a strategic and transformational consulting company specializing in digital products and organizational execution. Prior to founding HIGHER DIGITALTM, Wayne has spent the last 9 years working in global higher education. Most recently, Wayne led the digital transformation for Laureate Education and led a team responsible for software product management, enterprise architecture, user experience, development automation, and agile strategy and digital transformation for the Global Products and Services division.

Prior to Laureate, Wayne served as Vice President, Product Management for Ellucian where he provided strategic and executive leadership for Ellucian’s Mobile, Portal, Analytics, Document Management, Colleague Student Planning, and Teaching & Learning businesses and solutions that spanned three educational ERPs and had a global footprint in 40 countries, with more than 2,400 institutions and 20+ million students, faculty, and staff.  Wayne also served as the director of international product strategy at Blackboard, the global leader in learning management systems for higher education, K-12, and professional education.

Wayne is a Silicon Valley start-up veteran and brings a level of passion, entrepreneurial spirit, and vision to everything he does. He is a graduate of Dickinson College and the University of North Carolina at Chapel Hill.

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