An assessment of the disruptive potential of online education for the traditional university and its possible implication for internationalization

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1 Master thesis An assessment of the disruptive potential of online education for the traditional university and its possible implication for internationalization By Mustafa Zirak Exam number: Advisor: John Howells Department of Marketing and Organization 1 July 2014 School of Business and Social Sciences, Aarhus University

2 Abstract The present paper attempts to provide a critique on Christensen s framework regarding disruptive innovation, by investigating whether the framework explains changes within higher education and by discussing its implications on higher education in the United States. Ultimately, the aim of this study was to examine the descriptive value of Christensen s framework in regards to the terms disruptive and sustaining innovation on higher education in the United States. This was carried out by empirical evidence found in contemporary literature followed by deductive reasoning against the thesis statement. The findings, through analysis and discussions, show that higher education in the United States is too complex to be explained adequately by disruptive and sustaining innovations. However, the study does provide another perspective on the analogy of online education vs. traditional higher education and its possible implications for internationalization. The number of total characters in the present paper: (no spaces excluding appendix, abstract and front page) Key words: Christensen, Disruptive innovation, technology, higher education, sustaining, internationalization, International branch campus, online learning, MOOC.

3 Contents 1. Introduction Thesis statement Scope of this thesis Methodology Validity and reliability Research design Theoretical Review Introducing Christensen s framework Innovators dilemma (1997) Innovators solution (2003) The innovative University (2011) Critique by various scholars Linking disruptive innovation to higher education Revised thesis statement Defining the strategic landscape of higher education in US Private non-profit higher education institutions Public higher education institutions For-profit higher education institutions Sub conclusion Analyzing Christensen s framework in higher education Accreditation Defining online education Analyzing online education in relation to Christensen s framework Sub conclusion Massive Open Online Course (MOOC) Possible implications of MOOC Internationalization of transnational HE Possible implications of IBC Conclusion Bibliography Appendix /48

4 1. Introduction In 15 years from now half of US universities may be in bankruptcy Clayton Christensen, March 2013.(Suster, 2013) Higher education is one of the last bastion to resist turmoil as the scenario of a professor teaching in front of chalk board is still a regular occurrence. However online learning is increasingly getting footing and the question remains whether it will take over and replace the physical interaction between teachers and students within higher education. Christensen is a well-known business guru and Kim B. Clark Professor of Business Administration at Harvard Business School, who has been acknowledged as one of the foremost thinkers in the field of management in 2011 and His ideas on innovation are compelling and have received attention in the world-wide business community, including the author of this thesis. Christensen has helped to create a new language in the management, strategic and technological literature. Terms such as disruptive and sustaining innovation has been popularised by him since the beginning of the 1990 s. His forecast of the future state of higher education shrinking by half across all higher education institutions within a few decades are thought-provoking, which is why it could be interesting to examine his framework on innovation within higher education further to determine its efficacy and ultimately its value to higher education. Furthermore it is interesting to explore how his framework addresses the internationalization of higher education and discuss the possible implications it might have. This thesis is relevant, because it focuses on strategic implications on internationalization of higher education, both for students regarding online learning and higher education institution on international branch campus. 2/48

5 1.1 Thesis statement How does Christensen view higher education in the US? 1. What is meant by the notion of disruptive and sustaining technology? 2. How did Christensen develop his framework? 3. What have other scholars to say about Christensen s framework? 4. How is elements of sustaining and disruptive related to higher education? 1.2 Scope of this thesis In order to relate and analyse Christensen s framework to higher education assumptions and delimitations will have to be made in order to answer the thesis statement and reach a proper conclusion. The unit of analysis is Christensen s framework explaining higher education and not higher education in itself. Therefore in order to discuss the theoretical application of Christensen s framework parts of higher education will be disregarded or simplified. The effect of this is that parts of higher education will fall outside the scope of this thesis which may implicate the conclusion reached. Furthermore an exhaustive summary of the assumptions behind Christensen s framework will not be provided because the descriptive value of his framework toward higher education is essential. Throughout this thesis the concept of a business, organization, enterprise and firm will be used to relate to the overall framework of Christensen. However regardless of which of those concept is used, emphasis is on the strategic processes. Finally, due to the investigative nature of this thesis the reader is advised that delimitation beyond what is mentioned above will be further conducted as the thesis progresses towards the end. HE: Higher Education HEI: Higher Education Institution FP: For-Profits 3/48

6 2. Methodology In the following section, the author of this thesis will present his scientific theoretical position. This thesis takes the view on the nature of knowledge through critical realism, which is chosen as the most proper view to handle the research question. The nature of this thesis is of an investigative matter which means that empirical data is not being produced. Rather the aim is to use deductive reasoning based on empirical evidence found in the literature followed by critical discussion. Critical realism is an approach often used within the scientific and philosophical discourse, although it is applied in different forms and shapes. A basic agreement within critical realists is that they distance themselves from empiricisms naive realism, which holds that only empirical data leads to an understanding of the physical and objective reality. A dogmatic realist and a critical realist both believe that theories can be true or false, and rigorous scientific research can move us progressively towards a true account of phenomena. However dogmatic realists further believe that current theories correspond (almost) exactly to reality, and hence there is not much room for error or critical scrutiny. This attitude is inspired by (but does not strictly follow from) a primitive version of positivism which believes in debatable observations as raw data and that an infallible scientific method can safely lead us from these data to universal laws. In contrast, critical realists, though believing in the possibility of progress towards a true account of phenomena, would not take such progress for granted. Exactly because they believe that reality exists independently of our minds, our theories, observations and methods are all fallible. Critical realists also insist that verification and falsification are never conclusive, especially in social sciences. So critical testing of theories and alleged universal laws need to be carried out continuously (Kai-Man Kwan & Tsang, 2001) To a large extend the choice of a methodology in this thesis depends on the type of knowledge required in relation to the thesis statement. The outcome of this thesis is primarily based on secondary data and a thorough investigation as well as discussion of the unit of analysis. The author of this thesis decided against producing new empirical evidence as the author does not see how he can contribute with any relevant empirical data that is not already known in order to provide a substantial contribution for the thesis statement Therefore, the process of answering the research question will be carried out by finding empirical evidence followed by deductive reasoning. Support for the research question is achieved if empirical evidence is found to be in accordance what Christensen claims and whether it can be deduced by critical discussion. This thesis could also have taken the 4/48

7 approach of multiple case study. However due to the complexity and nature of the research question this approach was disregarded. 2.1 Validity and reliability In order to produce stable and consistent results having the research question in mind, a high degree of reliability is needed. The higher degree of reliability of the sources applied the better the conclusion of this research will be. Furthermore it is central for a test to be valid in order for the results to be accurately applied and interpreted (Blumberg, Cooper, & Schindler, 2005). Since this is a theoretical thesis the requirement of validity and reliability cannot be measured in the conventional way. However, steps will be taken in order to meet this by assessing type of data and numbers of sources used for any contribution. It is evident that fewer type of sources will lead to an output that is biased. The author of this thesis aims to reduce and delete any bias towards the validity by taking preemptive measures. Academic journals including professional and trade journals of this thesis are accessed through university libraries and have been well-covered in databases such as Business Source Complete and LexisNexis while books are mainly accessed and acquired through electronic media. Newspapers and public opinion journals which are useful sources of real-world examples are applied as a tool in order to contribute to a livelier thesis and avoid an Ivory tower label. As seen in the reference section Financial Times, Business Week and the Economist are the main contributors as each covers a vast area of the recent development within the fields of economics. Reports are a useful source of specific information which is highly relevant to this thesis as they offer descriptive data which in turn illustrates relevance and helps in making discussions. Thesis which concerning doctoral degrees (PhD s) are to some extent applied to the contribute to the research question, as the nature of a PhD dissertation is considered exhaustive and usually contains a very comprehensive literature review in addition to an extensive description of the theories and methodologies. Using these different types of sources should likely help validate the conclusion in a scientific way. There are different measures one can take in order to meet the reliability criteria. For example the obvious approach is to make sure that for each type of sources one refers to, a certain recognition of the specific source in question. The more cited and recognized a specific source appears the better is the likelihood that the data and knowledge is reliable. 5/48

8 Academic journals are considered to have a high degree of usefulness for scientific work, as they contain articles reflecting the current scientific discussion, show recent theoretical developments and provide empirical assessments of problems and theoretical ideas. Peer-reviewed academic journals in particular are very useful sources as their articles meet high quality standards of science. Books, whether in paper or electronic books (e-books), are as important as academic journal articles as sources of recent discussions, theoretical developments and empirical investigations concerning a certain research topic. Newspapers and public opinion journals help to actualize the phenomenon of disruptive innovation and provides recent knowledge on its applicability in the real world. For example New Republic is a magazine that has articles discussing Christensen s framework from an unbiased and a thought provoking perspective. The report from Babson Survey Research Group (BSRG) is the single most important report to provide the basis on which to answer the research question by. The good thing about the report is that it does not provide a snapshot analysis of online learning within higher education in the United States. Instead the report is conducted annually and has tracked online education for over a decade which makes its results high reliable because it is possible to compare between the years and therefor track changes. BSRG s study is aimed at answering the nature and extent of online learning by using a representative sample of 4,527 accredited HEI of which 2820 HEI s responded all within the United States. Because non-responding institutions are predominately those with the smallest enrollments, the institutions included in the report represents 83.3 % of higher education enrollments. According to BSRG the responses are compared for 35 unique categories based on the 2010 Carnegie Classification of Institutions of Higher Education. These weights provide a small adjustment to the results allowing for inferences to be made about the entire population of active, degree-granting institutions of higher education in the United States. The author of this thesis relies on the report to be representative and well executed making it a relevant empirical evidence. 6/48

9 2.2 Research design The research design can reflect our assessment on the nature of knowledge we are planning to generate using a specific approach. The author of this thesis intention is to conduct theoretical analysis and discussions of Christensen s frameworks against the industry of higher education. The main task is to examine the descriptive value that the framework of Christensen et.al has on higher education when relating to internationalization. From the analysis and discussions knowledge and insights will be developed throughout the process. The following model shows the progression in this thesis in relation to how the research question is approached. Figure 1: Project design Step 1 Initial problem formulation Step 2 Methodology Step 3 Theoretical review Step 4 Revised problem formulation Step 5 Analysis and discussion Conclusion Source: The author of this thesis s own production 7/48

10 3. Theoretical Review The purpose of this form is to concretely examine a selective part of the corpus of theory that has accumulated with relevance to the disruptive vs. sustaining framework. The theoretical literature review helps to establish what theories already exist, the relationships between them, to what degree the existing theories have been investigated, and to develop new hypotheses to be tested. Often this form is used to help establish a lack of appropriate theories, or reveal that current theories are inadequate for explaining new or emerging research problems. The corpus of theory in regards to the phenomena of disruptive innovation concerning this thesis is vast and comprehensive. Instead of chronologically working towards a literature review and explain every development of the phenomena the author of this thesis choses selected parts relevant to the discussion and conclusion. This literature review should be understood as an attempt to highlight any flaws that may relate to the assumptions prior to the analysis of the framework of disruptive innovation in higher education. 3.1 Introducing Christensen s framework The framework of Christensen and his collegue was first introduced in Harvard Business Review (HBR) in 1993 and has been continually developed since then. The framework distinguishes between two types of technological change; Sustaining and disruptive technology are two terms coined by Christensen and his colleagues after their research in the disk drive industry. (C. M. Christensen, 1993) Innovators dilemma (1997) Christensen broadly defines technology, as conceptualized in the The innovators dilemma (1997), as the process by which an organization transforms inputs of labor, capital, materials, and information into products and services of greater value (C. Christensen, 1997). Hence, all firms whether dealing with physical or service products, including e.g. schools and coffee shops, employ a range of technologies. According to Christensen if follows that this concept of technology extends beyond engineering and manufacturing to encompass a range of marketing, investment, and managerial processes. In other words it encompasses strategic decision making as well. Christensen s distinction between the two types of technologies aims to highlight a dichotomy within his framework which 8/48

11 partly draws upon resource dependence theory. This theory which is controversial among scholars states that companies depend on customers and investors for resources and therefore the companies freedom of action is limited to satisfying the needs of those entities outside the firm (e.g. customers and investors e.g.) that give the company the resources it needs to survive (Sandström, 2010). Furthermore Christensen s framework is also based on the concept of value networks in which Christensen defines as the context within which a firm establishes a cost structure and operating processes and works with suppliers and channel partners in order to respond profitably to the common needs of a class of customers. ((C. Christensen, 1997) p. 32. According to him a firm has good reasons to satisfy its existing value network since this largely defines its competitive advantage and supplies it with resources. However this results in the consequence that network hampers attempts at developing innovations which are not requested by existing customers. If an attacker wants to compete with an incumbent, Christensen advises that the attacker must create a new value network and compete against non-consumption For now assumptions Christensen s framework will be taken for given and not be discussed further. However they will be addressed later in the thesis when seen relevant to the higher education industry. This section aims to foster a better understanding Christensen s framework. Figure 2: The impact of sustaining and disruptive technological change Source: (C. Christensen, 1997) p. 16 9/48

12 As evidenced in Figure 1, Christensen states that the disruptive technology initially does not meet the demands of the mainstream market which is why the incumbent does not see any reason to respond to the disruptive technology, because the incumbent s mainstream customer segment does not value the disruptive technology. Therefore, Christensen argues, that the incumbent does not see a disruptive technology as a real and immediate threat. Over time as research and development (R&D) improves, or as Christensen would frame it sustaining innovation occurs within the disruptive technology, the performance supplied by the disruptive technology will meet the demands of the mainstream market and thus the incumbents sustaining technology will be obsolete. Consequently, disruptive technologies tend to be associated with replacement of incumbents by entrants. According to Christensen his framework should be understood as a theory and consist of a conceptual model of cause and effect that makes it possible to better predict the outcomes of competitive battles in different circumstances. However this statement is actually what this thesis wants to challenge. Two points of critique that the author of this would like to highlight in this regard is firstly that it seems Christensen has handpicked selective case studies in the book which of course increases the likelihood of the cases to fit in with his framework, as he does not mention whether the cases picked are randomly selected and more importantly why. Furthermore considering the hotel industry, it would be difficult for his framework to explain the exit / entrance of hotels as there is no case which comes to mind where a low cost hotel provider has disrupted an incumbent (a premium hotel). Secondly as mentioned previously his framework was a result of his doctoral thesis which dealt with the disk drive industry. The disk drive industry which was the unit of analysis implies that his framework was created in a business-to-business (B2B) environment as the consumers was not as important factor as was the companies in the disk drive industry. There is a far greater chance of rational behavior among B2B than consumers. This implication will be addressed more thoroughly later in the thesis Innovators solution (2003) In 2003 Christensen published a follow-up book, The innovators solution: Creating and sustaining successful growth 6 years after the highly hyped, The innovators dilemma (1997). The follow book, coauthored by Michael E. Raynor, deals with the question on how to build a successful company while sustaining success. This book provides a more nuanced approach to apply his framework 10/48

13 because it offers ways to measure what a disruption is in contrast to his first book. Furthermore Christensen changes his initial self-created language on his framework by exchanging the term disruptive and sustaining technology to disruptive and sustaining innovation because he acknowledges, that in many contexts few technologies are intrinsically disruptive and sustaining. Instead, he argues, it is the business model that the technology enables that creates the disruptive or sustaining impact, not the technology itself. Furthermore Christensen now addresses a disruption as a relative term, because he argues that, an idea that being disruptive to one company can be sustaining to another company. Therefore one should ask whether the innovation is disruptive to all of the significant incumbents in the industry. Furthermore he now distinguishes between two types of disruptive innovation: A low end disruption vs. new market disruption. It is clear that since Christensen s framework received a lot of attention around the world and that he had to come up with a follow-up book to address the criticism he received after his breakthrough book. The initial framework had to be revised because various scholars had pointed criticism which will be presented later subsequently The innovative University (2011) The Innovative University: Changing the DNA of higher education from the inside out by Christensen and Eyring (2011) deals with the question of the future state for traditional universities in America and how disruptive innovation can change the landscape of HE. According to Christensen many colleges do not perform all of the functions that universities normally do. As an example scholarly research and granting Ph.D. degrees can be mentioned. However universities play a major part on influencing colleges, particularly the ways they educate students.(c. Christensen & Eyring, 2011) p. 21. Accordingly, in this thesis, the term university will continued to be used even when referred to colleges. Christensen contrasts Harvard University, a very well-known HEI, to a less known community college, BYU- Idaho which he argues to be disruptive relative to Harvard University. What we can use this information for is that it opens the door for the reader on how to look at disruption. The authors depict the crisis facing HE institutions as radically different from ever before due to key issues relating to global and cost-effective accessibility to knowledge; disruptive educational technologies such as online learning, escalating tuition fees, high student debt levels, structural budgetary constraints of sponsors, dissatisfied students and several other areas which according to the authors, points towards a paradigm shift within HE in America. They argue that incremental and 11/48

14 traditional strategic innovations are obsolete in dealing with the HE crisis and thus offers disruptive innovation as an answer towards facing the challenges within HE in America. The authors indicate the emergence and relevance of different types of institutional models of how universities might successfully evolve in the next decade. We concluded that universities are anomaly that the original framing of disruptive innovation could not explain. True, most entrants have indeed entered the low end or new market of higher education eg. Community colleges and private providers. And they have almost uniformly driven upmarket to offer bachelors and advanced degrees in more and more fields just as the theory would predict. But the demise of incumbents of the incumbents that characterizes most industries in the late stages of disruption has rarely occurred among colleges and universities. We have had entry, but not exit (C. Christensen & Eyring, 2011) p. 12 Christensen mentions community colleges and private providers in which the latter is assumed to refer to for-profit HEI s, and this is something that should be assessed more thoroughly. Furthermore in the quote above he admits that his framework is not explaining HE well in which we can draw two reflections. Firstly, his framework must have flaws which he has not accounted for. Secondly two years after his latest book on higher education, he forecasted that half of all HEI in the United States may be facing closure within 15 years.(suster, 2013) This contradiction calls for a further investigation of his framework and the structure of HE in the United States. 3.2 Critique by various scholars (Bennett & Cooper, 1982) opposed the scholars and practitioners of the marketing literature by denouncing the marketing concept for converting the firms attention away from products and manufacturing to market wants. They claimed that companies do not develop real product innovations by focusing solely on the mainstream customers. The researchers argue that a market pull strategy provides little encouragement for technological innovations, especially for a new product development. A market-oriented R&D invariably leads to low risk product modifications, extensions and style changes. (Bennett & Cooper, 1982). These finding partially support the framework of (C. Christensen, 1997) in the sense that companies should not always be listening to their mainstream customers in their demands, because the value proposition of disruptive technologies are not demanded from the most demanding customer s point of view. Hamel & Prahalad (1991) also support this view and goes on to suggest that corporative imaginations quickens when companies escape the tyranny of the served markets. They acknowledge the 12/48

15 importance of companies ensuring the satisfaction of its customer base, but argued that it is also important for companies to ask which customer it does not serve. Charitou and Markides (2003) focus on responses to strategic innovation where innovation in one s business model would result in playing the game in a new way. Disruptive strategic innovation is a specific type of strategic innovation, because it involves playing a game both different from and in conflict with the traditional way. 2 In line with Christensen s studies they point out that an attempt from a company to pursue both a disruptive and sustaining strategy simultaneously risks undermining the value of a company s existing activities and will result in major inefficiencies. They distinguish between disruptive strategic innovation and disruptive technological innovation where the latter in hindsight tends to completely destroy the old ways of competing while disruptive strategic innovation never really overtakes the traditional way of playing the game. Their study identified two factors that influence how companies should respond to major disruptions in their business which are motivation to respond and its ability to respond. In disruptive strategic innovation the ability of a company to respond is predominately determined by the nature and size of the conflict between the traditional business and the new business. The key issue is that the higher the conflict exists between the new and the old business the lower will the ability be to respond to disruptive strategic innovation. A company s motivation to respond is primarily determined by how strategically related the new business is compared to the traditional one. In their study, Charitou and Markides identified 5 strategic responses. Response 1: Focus on and invest in the traditional business Response 2: Ignore disruptive innovation- It s not your business Response 3: Attack back- Disrupt the disruption. Response 4: Adopt the innovation by playing both games at once Response 5: Embrace the innovation completely and scale it up Source: (Charitou & Markides, 2003) p According to Charitou and Markides (2003), disruptive strategic innovations are not necessarily superior to the traditional ways of competing, nor are they always destined to conquer the market. 2 Please see Appendix 2 for examples on some industries facing strategic disruptive innovations. 13/48

16 Rushing to embrace them can be detrimental for established companies when other responses, including ignoring the innovation, make more sense. Danneels (2004) is known to have challenged Christensen s framework in his cited and peer reviwed articles. Firstly, despite Christensen s attempt to describe and define his framework, Danneels questions in his article, Disruptive technology reconsidered: A critique and research agenda, on what a disruptive technology is at the fundamental level, how it can be distinguished from sustaining innovation and most importantly whether there is a valid instrument to measure disruptiveness of innovations (Danneels, 2004). He criticizes Christensen for not providing clear cut criteria of defining a disruptive technology. Danneels also reflect on whether a technology is inherently disruptive or if disruptiveness is a function of perspectives on the companies subjected to it. Furthermore, he challenges Christensen to explain at which point of time a technology can be defined as disruptive. Moreover Danneels (2006) argues that Christensen s case studies and application of the framework are based on ex post explanations and not necessarily are good for ex ante predictions. In other words the author implies that in hindsight it may make sense that the framework makes intuitive sense, but questions whether disruption is an event you can predict and take action upon.-but the question remains whether there are features of technology and their initial applications that signal potential disruptiveness.(danneels, 2006) p.2. According to Danneels this is one of the reasons why some established companies and analysts are skeptical about the concept of disruptive innovation. Furthermore Danneels suggests that one should make a distinction between making predictions about technologies and making prediction about firms, because he mentions it is not clear-cut when to distinguish between the two when examining Christensen s framework. However he acknowledge that Christensen has shown examples of companies applying his theory successfully e.g. Intel that introduced the Celeron microchip process. Federal Filings Newswires (2001) shows that Christensen was unsuccessful in the stock market where on March 10, 2000 Christensen cofounded the company Disruptive Growth Fund - a mutual fund investing in stocks of disruptive technology companies. Less than a year later, in February 2001 this company had to close down with a loss of 64% of its value whereas in comparison NASDAQ lost 50% of its value during the same time period. Christensen refused to comment about this matter afterwards (Danneels, 2006). Danneels also mentions that this area of research has been multidisciplinary as scholars from many different disciplines have contributed. Unfortunately he reflects that the research on this area has not been interdisciplinary. A truly integration of ideas from several disciplines to form a comprehensive and rich understanding of the phenomenon is yet to be seen. 14/48

17 However in spite his critique, doubts and challenges on Christensen s framework Danneels acknowledges that Christensen s ideas are indeed powerful and indeed do contribute to firms the intellectual knowledge. Other scholars who have also shown great interest in Christensen s framework have contributed positively developing Christensen s framework. Govindaranjan & Kopalle (2006) added thoroughness to the substantive research of disruptive innovation by identifying ways to measure the disruptiveness construct. At the same time they also attempted to meet Daneel s criticism regarding the usefulness of Christensen s framework in making ex ante predictions about industries and companies. This was done by creating a more precise definition of disruptive innovation which still is consistent with Christensen s ideas of disruption. "A disruptive innovation introduces a different set of features, performance, and price attributes relative to the existing product, an unattractive combination for mainstream customers at the time of product introduction because of inferior performance on the attributes these customers value and/or a high price although a different customer segment may value the new attributes. Subsequent developments over time, however, raise the new product s attributes to a level sufficient to satisfy mainstream customers, thus attracting more of the mainstream market." (Govindarajan & Kopalle, 2006) p. 1. The difference between this definition and Christensen s is while Christensen only focuses on price points Kopalle and Govindarjan included high end and low end issue of disruption. Christensen (2006) acknowledges this definition being more nuanced than his definitions in both the 1997 and 2003 book (Sandström, 2010). While disruptive innovation may not help predict ex ante if a technology will be disruptive, they asses that the framework helps it making ex ante predictions about the type of firms likely to develop disruptive innovations. In another part of their study Govindarajan and Kopalle (2006) attempted to conduct a methodological and measurement contribution of the phenomena of disruptive innovation in relation to market orientations, and the findings in their study supported their initial hypotheses that; 1. Mainstream customer orientation is negatively related to disruptive innovation 2. Mainstream customer orientation is positively related to radical innovation 3. Emerging customer orientation is positively related to disruptive innovation 15/48

18 Mainstream customer orientation is defined as the majority of customers that the incumbent serves. Emerging customer orientation is defined as segments that are not the companies current focal point, but have the potential of becoming more important in the future. Furthermore mainstream customer orientation was found to have a near-zero correlation with emerging customer orientation, indicating that the two can coexist and can be pursued simultaneously. This suggests these are two independent dimensions of customer orientation, rather than opposite ends of the same continuum. However it is not stated whether this can be carried out within a single organization or through different SBU s.(strategic Business Unit) This contrasts with the work of Christensen who claims that companies trying to manage mainstream and disruptive businesses within a single organization is most likely to fail. 3.3 Linking disruptive innovation to higher education There are relatively few institutions which have survived until this century while still remaining in its original form. The industry of higher education is one of them, as about 70 universities are still remained in its current form. (Carey, 2013) The historic stability of the industry of higher education is remarkable as the forces of innovation has not had its impact in shaping and changing higher education in a revolutionary way. Large universities rarely cease to operate, the prestigious ones is not quickly overtaken or being merged. Christensen argues that the reason why disruption has not revolutionized higher education is because there has not been a technological core that has allowed the industry to face turmoil. This claim seems at first hand simple to be taken at face value as HEI is influenced by many other stakeholders in contrast to other conventional industries. It is convenient to reflect according to Christensen that the emergence of the internet on-line education of higher education degrees will substitute for degrees taught on physical campuses. Christensen states that online learning has opened educational opportunities to entire communities of people who were previously restricted from higher educational purposes, and that he believes that such access will continue to grow as the technological infrastructure continues to expand around the world. It is obvious that technology has strengthened the global reach of universities wishing to compete for students in a global marketplace of students and teachers. The possibility of students and teachers from multiple geographic locations to simultaneously participate in HE increases the level of international interaction within the institution. 16/48

19 In the aftermath of the Innovative University, Christensen has stated following: It s worth noting that we re predicting a different kind of disruption in higher education than the type seen in computer manufacturing, book publishing, or music and movie distribution. Traditional university and college campuses won t go the way of the record shop or the video rental store. Particularly for young students, a college education is a social experience requiring some amount of face-to-face interaction. Institutions that cling too long to the old model are unlikely to survive. (Denning, 2011) at the end of the webpage. Christensen s framework suggest that any changes in a competitive battle where the industry is being changed in a revolutionary way is coming not from innovation by the incumbent. Instead it is by the attacker or the disruptor from the bottom of the market. Linking this to HE Christensen suggest HE can only be disrupted by HEI s at the bottom of the HE industry. This is where online education come in to the picture as it will be examined whether and how it has the potential to disrupt higher education. As Christensen mentions in the quote above it is not a matter of replacing traditional HE, but more in regards to changes in the market. The reader should be reminded, that the author of this will not attempt to speculate on the future of higher education. Instead an assessment of the value that Christensen s framework promises will be examined. 17/48

20 Figure 3: Disruption in higher education Source: (Horn, 2009) p Revised thesis statement How well does Christensen's framework explain what we observe in the strategic development of higher education (HE)? In order to answer the research question the following sub-questions will be addressed. 1. How is the strategic landscape of higher education in the US shaped? 2. How can Christensen s framework be used to analyse competition among higher education institutions? 3. What are, if any, the flaws of Christensen s framework when applying it to the higher education institutions in the US? 4. What are the implications of Christensen s framework for internationalization of HE 18/48

21 4. Defining the strategic landscape of higher education in US This section will attempt to present a context to better gain an understanding of the market and more importantly in the different delivery systems in higher education in the United States. Higher education is a complex industry and is not easily comparable to other industries owing it to its nature of advancing knowledge first and foremost and subsequently diffusing it out. Furthermore the complexity is followed with a vast array of unique practices and terms. According to Waas, Verbruggen & Wright (2010) universities are meant to serve the public interests whereas organizations have self-serving interests. This implies that conventional strategic tools used in the private sector may not be viable to address higher education institutions (HEI s), which is reasonable claim due to its premise of serving public interest. However, influx from other higher education delivery systems in fact focuses on profit explicitly, and is contributing to make this distinction more blurred. This will be clarified further in the next section. In order to analyze and discuss Christensen s framework to HE it is necessary to conduct limitation and assumption. The first assumption is that HEI s are more or less managed like a corporation in by bringing a value proposition, which customers are willing to pay for. The value proposition is different from one institution to another especially when distinction is made whether an institution belonging to the private nonprofit sector, the public sector or the for-profit sector. Therefore, it is viable to conduct an analysis from a market point of view in which competition among the different HEI s remains for ensuring survival, maintaining or enhancing HEI s strategic positions. It is worthwhile to note that degrees offered in HEI s are considered as the main product of an HEI, and these are partly influenced by factors such as faculty staff, the government, the public etc. But for the sake of simplicity and limitation on this thesis not all of them will be addressed as the focus is on analyzing Christensen s framework to elements of HE. In the following section, three subsectors of higher education will be presented, as there is a need for an initial understanding of how the strategic landscape of higher education occurs in the United States and what Christensen s framework suggests. 19/48

22 Higher education in the United States breaks in to three subsectors based on how each subsector is financed and controlled 3. The US HEI depart from the traditional market capitalistic mode as the government heavily funds student loans and research. (Berry & Worthen, 2012). Table 1: Segmentation of competition in higher education system Source: (Marginson, 2006) p. 8. As evidenced by Table 1, HE is segmented into elite research universities, aspirant research universities and finally the teaching focused universities. Christensen denotes elite research universities as incumbents who are the market leader in HE, and provide high quality education to the most demanding students. This knowledge derives by his analysis of Harvard University in his book Innovative University (2011). The aspirant research universities are the challengers to incumbents and they are trying to move up market by emulating the incumbents value network. Keep in mind that Christensen defines value network as the context within which a firm establishes a cost structure and operating processes and works with suppliers and channel partners in order to respond profitably to the common needs of a class of customers. In other words, the aspiring universities are pursuing prestige in order to increase in what is in their view the concept of profit. Profit is in this case not viewed as a monetarily asset; it is the degree of status and prestige in which 3 HEI with a total enrolment of 14 million students in Berry & Worthen (20012) 20/48

23 the external stakeholders perceive the HEI in question. In academia, it can be argued, that the relevant criteria to assess how well a university are doing is prestige and reputation. For example, Williams College, with its two thousand students is considered to be more prestigious than Arizona State University which has fifty thousand students.(mcclennney, 2012). Furthermore, Hirsch (1976) argues higher education operates as a positional good in which some student places offer better social status and lifetime opportunities than others. The positional aspect may not be the only consideration in the minds of prospective students, but it is found to be more important than teaching quality, because in most cases institutional reputation is known, teaching quality however is mostly unknown. The point is that when students are confronted to choose between a prestigious university with known indifference to undergraduate teaching, and a perceived weaker institution offering better classroom support, it can be assessed that most students will opt for prestige. This is also confirmed by research (Marginson, 2006). Prestige among HEI s in United States is therefore not related to market share or net profits accumulated by the end of the operating calendar; instead prestige is measured as a function of funding, selectivity and exclusivity. Segment 3 refers to HEI s who are primarily teaching focused where the HEI is open which reflects in the perceived lower quality status. The following section will attempt to address the various higher education subsectors in the US, which are closely connected to the three segment descried above. 4.1 Private non-profit higher education institutions The first and oldest type of subsector in higher education in the United States (US) is the private nonprofit organizations. The nonprofit colleges and universities are ranging from the Ivy League to local liberal arts colleges. The Ivy League, gained its name starting as an athletics conference between eight private universities. However in this case Ivy League are academic and intellectual powerhouses that attract some of the best student and researcher talents in the world. The combined number of students in the Ivey League actually only makes up for less than 1% of all university students. (Jacobs, 2013). Suppliers in their efforts to provide better products than their competitors often overshoots the market which results in customers receiving more than they need or ultimately are willing to pay for. This leaves a gap in which disruptive technologies that may underperform today eventually will be fully performance competitive the next day.(c. Christensen, 1997) p. 16 Cost increases at private non- profit institutions of higher learning derive partly from higher faculty salaries, but more from activities unrelated to classroom instruction. Scientific research, competitive 21/48

24 athletics, and student amenities require both large operating spending and the construction of hightech laboratories, football stadiums, and activity centers. As a result, the cost of higher education grows faster than faculty salaries or other instruction-related costs (C. Christensen & Eyring, 2011). Christensen claims that when the Ivy league universities are facing strategic choices they will take action whether it is in accordance to maintaining or enhancing their prestige and exclusivity. This is particular when Ivy League universities spend lavishly on prestige facilities and in turn generating low financial returns. They are therefore not primarily driven by revenue and money is merely the means to the real end, which is the role as engines of status. During , the Ivy "Big Three"- Harvard, Yale, and Princeton collectively spent USD 6.5 billion on operations, which is up over 100% from a decade ago (Bianco & Rupani, 2007).These HEI maximize research 4 while keeping the limitation on the number of incoming student. Christensen argues that the Ivy league universities are overshooting their customers which in this context refers to the students by ultimately giving them more than they need and thus put the HEI in a state where it can be potentially disrupted. Furthermore HE among this subsector is in a positional market where the competition on the one hand is between the producers e.g. other research universities and on the other hand competition among students to get in to the prestigious HEI s. 4.2 Public higher education institutions The second subsector is the public research universities and community colleges, which combined educate roughly 75% of the college students in the United States. Community colleges are responsible for 44% of all undergraduate students in the United States (McClennney, 2012). The purpose of community colleges is to provide higher education on a mass scale at a low price; Tuition tends to be markedly lower at community colleges than in any other sector of higher education, so the folks who equate price with quality will leap to certain conclusions. (McClennney, 2012) p. 13. In other words, when referring to higher education in the United States the public universities and community colleges are the main subsector. However, a clear distinction should be made between public universities and community colleges, because the latter is not associated with prestige due to its nature of serving teaching only while the public universities can be prestigious due to research and reputation. Because community colleges tuition fees are relatively lower than private universities, it can be argued that this subsector s perceived quality is considered to be substantially lower than the 4 Research performance feeds university status. E.g. the more publication the university publishes the better will its reputation become. 22/48

25 private non-profit sector and the for-profit institutions of higher education (Baum & Payea, 2011). In Christensen s language community colleges are conceptualized as low end disruption meaning that they are in the bottom of the market serving a mass with a lower performance. Community colleges can only go upmarket by competing with 4 year undergrad HEI s. Christensen s framework projects that this will take place in the future given that community colleges acts as disruptor relative to the undergraduates. 4.3 For-profit higher education institutions The for-profit institutions (FP) in the third subsector, have their roots in the trade, business and secretarial branches making up the second largest tier of the market. FP providers, which once had marginal presences, now account for one out of every nine undergraduates in America, and their share continues to grow. The same cost structure applies just as in non-profit institutions in regards to increasing costs not relating to class teaching. (Bianco & Rupani, 2007) According to North (1990), the current FP sector in the US is not the result of free-market capitalism because the for-profit institutions are subsidized, with most major and minor HEIs relying heavily on students who receives federal and state financial aid. Another important characteristic is that FP s have a more distinct market/target group than their public and nonprofit counterparts. While the sector is growing in the number of students enrolled and offers an associate, bachelors or graduate degree, it is largely in fields that relate directly to the labor market. Over 56 % of the BA degrees awarded by the FP sector were in business and administrative services, in contrast to public universities, where the percentage was 19 % of all BA degrees awarded. Moreover, the vast majority of students in FPs are much older than the traditional college age cohort of This naturally means that the majority of them are independent, but also they may not be interested in attending classes with fresh grads students who comes directly from high schools. Economic downturns tend to push up demand for tertiary education, in part because unemployed workers enter the market looking for ways to retrain and improve their employability. The recession also saw an upward trend in the number of part-time workers who, for similar reasons, sought to enroll in FPs to further their education. Financial constraints on the ability of public colleges and universities to grow in enrollment and programs also resulted in new market opportunities for FPs.(North, 1990) 23/48

26 4.4 Sub conclusion Higher education in the United States is divided into three subsectors which consist of the public, private non-profit and FP higher education institutions (HEI s). The competition between HEI s is derived from prestige which again is a function of history, research, selectivity and faculty staff among other factors. The elite research universities are at the top of the market while aspiring research universities are trying to emulate them by channeling their resources to gain prestige. The teaching focused HEI s are at the bottom of the market because they are open, non-research operations and cheapest at acquiring a degree from. 5. Analyzing Christensen s framework in higher education The obvious Christensen question follows after the description of the three subsectors: Is the FP industry disrupting the traditional higher education institutions in the United States? Firstly, let us define Christensen s language in relation to its meaning.. Christensen states that once the disruptive product gains a foothold in new or low-end markets, an improvement cycle begins. And because the pace of technological progress outstrips customers abilities to use it, the previously not-good-enough technology eventually improves enough to intersect with the needs of more demanding customers. When that happens, the disruptors are on a path that will ultimately crush the incumbents. Christensen wants disrupting to refer to an ongoing force that has not yet replaced the incumbent but that in future it will replace the incumbents. The term disrupted means that the incumbents have been replaced by the disruptive innovation. Keeping Christensen s language he presents the litmus test in order to distinguish between given innovations in relation to his framework. Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them? To use the product or service, do customers need to go to an in convenient, centralized location? Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price? (Christensen, C. & Raynor, M., 2003b) p /48

27 It is clear that Christensen s test is very superficial because it only relies on a few set of few set of factors. However the questions provides a foundation on how to assess the FP s. It may be worthwhile to include a more revised definition of Christensen s framework by other scholars. Kopalle and Govindranjan came with a narrower and more precise definition in which Christensen later accepted. 5 "A disruptive innovation introduces a different set of features, performance, and price attributes relative to the existing product, an unattractive combination for mainstream customers at the time of product introduction because of inferior performance on the attributes these customers value and/or a high price although a different customer segment may value the new attributes. (Govindarajan & Kopalle, 2006) p. 1. In this context the existing product refers to private nonprofit HEI and prestigious public universities, also known as the traditional degrees in HEI s. Furthermore keep in mind that the concept of mainstream customer does not refer to community colleges although they are most represented in HE in the US. Community colleges only focus on teaching are the least expensive way of obtaining HE in the United States. Furthermore HE is measured in prestige and thus is the currency in which to evaluate the perceived quality of a HEI. As prestige partly is a function of research, community colleges are naturally excluded from this. Furthermore, community colleges are not selective regarding students which means that they are open to anybody. It is problematic to generalize all the FP HEI s under one bracket as there are differences in how they operate. However it is clear that they are different and certainly more preferable than community colleges in relation to prestige. The FP s appeal to a different customer segment than the private nonprofit, public universities and colleges, as was described earlier about their customer segment not necessarily reflecting the usual age cohort. Another factor to consider is the growth of the FP sector. Christensen mentions a specific example of how an FP HEI is disrupting traditional HEI in his book The innovators solution (2003) in which University of Phoenix, a unit of the Apollo Group is disrupting four-year colleges and certain professional graduate programs. Today the University of Phoenix is one of the largest higher educational institutions in the United States and is one of the leading providers of online education.(christensen, C. & Raynor, M., 2003a) p. 64. It is difficult to assess his framework in relation to time which is on the horizontal axis on his simplified chart. However there are some characteristics which is worth discussing in which Christensen s framework experiences challenges given his own conditions on how to apply his framework on HE. 5 Please see critiques from other scholars section in order for a more thorough explanation. 25/48

28 For example, in relation to FP s there is certainly a large population who historically have not had the opportunity in order to get an education at the prestigious public private non-profit universities due to their life circumstances e.g. working adults. Although Christensen wants us to think of FP s as a disruptor to traditional HE it can be argued that FP s have evolved from a need from people who wants an education and that it is not in competition with traditional HE, but rather a supplement or addition to the overall HE. The trajectory of FP s replacing traditional HE does not seem logical, because it is not a question of replacement. Instead it is regarding different needs being met in different contexts. Furthermore there are other factors in which Christensen s framework runs into challenges. Figure 4: For-profit vs. nonprofit Source: (North, 1990) p. 6. Consider Figure 4 which it presents tuition fees divided by subsector. On average, the FP s tuition level is $ 14,280 while it is $ 10,266 for private colleges and $ 2970 respectively per year. It is interesting to note that although tuition is higher in FPs the graduation rates are very low compared to public and private nonprofit colleges. What can be acknowledged initially is that FP s do not contribute positively to overall graduation rates for 4 year HEI despite having relatively high tuition fees. Generally, the customer segment is different from the other two subsectors as the main customer segment of FP s are working adults and non-conventional students compared to the other two sectors in which the students arrive directly from high school. In order for higher education to be disrupted by the FP s HEI s it needs to deconstruct the leading and middle level HEI s and thereby much of the research that they produce which is again to eliminate the associated social status and knowledge goods. The functions of these HEI s generate much of the social value in HE, thus making it very 26/48

29 unlikely to be outcompeted. However factor to consider when discussing higher education is accreditation. 5.1 Accreditation Higher education accreditation is a type of quality assurance process under which services and operations of educational institutions or programs are evaluated by an external body to determine whether the institution in question meets a certain criteria issued from an external body. Should it be the case that the standards evaluated are met, then accredited status is granted by the agency. The agency accreditation process run either by governmental or non-governmental agency is designed both to assure minimum standards and to help institutions assess and improve themselves. All accrediting of U.S. HEI s is done by nongovernmental accreditors and HEI s that are not accredited by accreditation associations may not receive public funds by the Education Department. Institutions themselves use accreditation status as a means of determining whether credits students have earned elsewhere will be accepted for admissions or transfer purposes. Furthermore, being an accredited HEI has public value and benefit as it confirms to parents, students, and employers that the institution meets minimum educational standards (Wellman, 1998). According to Carey (2013) the traditional college degree monopoly which should be understood as the public and private nonprofit sectors has long been sustained by three mutually-reinforcing factors that have contributed to the industry s stability. Firstly, colleges are highly subsidized through some combination of direct government funding, non-profit status, and student financial aid. Secondly, only accredited colleges can receive government subsidies and offer credits and credentials that are recognized by employers and other colleges. The accreditation system, described above, is controlled by existing colleges themselves which gives them carte blanche, to decide on design, standards and set a bar for what these institutions perceive higher education to consist of. Finally, it can be argued that the society mentally invests in the idea of traditional colleges because it may be difficult for the average person to think about credentials in any other way than the traditional way. The fact of the matter is that students are not buying the degree itself. Instead is the credentials which gives them what they need in order to proceed further in life. It is important to note that the FP HEI s still belong to current accreditation implying that although their value offering is different than the traditional HE the FP s still have to adhere to the norms and standards set by the accrediting agencies which in turn is set by the traditional HE. The next section will address the role of online education in the US and how it is related to Christensen s framework. (Carey, 2013). 27/48

30 5.2 Defining online education Table 2: Distinction between the different deliveries of teaching within higher education Source: (Allen, Seaman, Consortium, Babson Survey, & Foundation, 2013) p. 7 Distance education has a history that spans almost two centuries, and throughout this period of time the development of how learning takes place and is communicated has faced significant changes. For example, from basic correspondence through postal services to the wide variety of tools available throughout the internet, society has implemented new forms of communication throughout time. Online education is one form, which estimated to have been brought about in the beginning of the 1980 s, whereas the origins of another form called e-learning is not fully disclosed. (Moore, Dickson- Deane, & Galyen, 2011). There seems to exist a relaxed view on the terminology of distance education because terms such as online learning, e-learning, mediated learning, online collaborative learning, virtual learning, web-based learning are used and perceived synonymously. Although each has its distinctive traits there is an understanding in the online literature that they all can point to Online Learning Environment (OLE). The core characteristic of OLE s are the design methodologies as courses, programs and learning objects can either be self-paced, self-directed or instructor-led. Rhode (2009) suggests that the most common form of distance related course design within higher education are instructor-led described which is described as an environment where an instructor guides learners through a required instruction content. In this type of learning environment, the 28/48

31 instructor controls the instructional sequencing as well as pacing and all learners participate in the same learning activities at specified times. Other forms of learning environment include the act of self-paced learning environment that enables individuals to study online in their own time and at their own pace, from their own location (Moore et al., 2011). 5.3 Analyzing online education in relation to Christensen s framework The common analogy among scholars and other thinkers is between online courses and in-person courses. While an online class might not be as good as sitting in a classroom being taught in person by a learned scholar, the thinking goes; online courses are cheaper and getting better all time and so will eventually disrupt the providers of live instruction. In Christensen s language online education is disrupting higher education by offering cheaper HE solutions to a different customer segment on the market of HE. In order to address this and ultimately answer part of the research question it is necessary to see online learning from a deeper basis. For example it could be interesting to investigate how online learning has impacted the three subsectors of HE in the US in relation to Christensen s two categories of innovation. 29/48

32 Table 3: Who offers Online? Source: (Allen et al., 2013) p. 37 Allen et al. (2013) have conducted yearly report about the state of online education among 2,577 HEI s in the United States for a period of over a decade starting in The report includes for profits (FP s), private non-profits and public HEI s. As seen from Table 3 there has been a change in the attitude of implementing online education among all sectors of HEI s in the US both in terms of online courses and full online degree programs. The public and FP HEI s are most predisposed on offering full online degree programs while the private non-profit is catching on. 30/48

33 Table 4: Is online learning strategic? Source: (Allen et al., 2013) p. 22 When the first report took place in 2002 less than half of all HEI s in the US acknowledge online learning as critical to their long-term strategy. 10 years later the replies to the same question revealed that 70% of all HEI in the sample now saw online learning as critical to their long-term strategy. Online education is most important to the long-term strategy of public institutions, and least important to the private non-profits. The majority of institutions of all sizes believe that online education is critical to their long-term strategy. Furthermore Chief Academic Officers in the Babson research report was asked whether they believed learning outcomes in online learning was compatible with face-to-face outcome and a surprisingly 77% answered yes to that question meaning that only a minority of 23% believed face-to-face interaction was far more superior than online learning outcome. It is a given that the survey also found that academic leaders at institutions with online offerings have a much more favourable opinion of the relative learning outcomes for online courses than do those at institutions with no online offerings. (Allen et al., 2013) 31/48

34 It is clear that online learning has a substantial impact and importance on the traditional HEI s. Thus it makes no sense to further stress its importance on HE. However a discussion is need to discuss in which context online learning occurs. The HEI s which offer online education either in the form of full degrees online or plain courses are still operating within the system of accreditation meaning that it has only value for students to take online courses if the institutions are accredited. This mechanism ensures that; what is perceived as a traditional education with different degrees are still uncontested by online learning, just under different circumstances. Taking a page from Christensen s language, it is suggested that there is a sustaining impact from online education given the fact that the accreditation system builds on the traditional view of what a degree is and how it is obtained. One might wonder about the effect of online education which opens the possibility that a learner/student can obtain a degree living on the other side of the globe and still in theory acquiring a degree from a HEI in the US. Furthermore the possibility of the global market being able to acquire an online degree from a US HEI seems very promising and entails that online education can and will change not only the US HE but also the global HE. Figure 5: Geographical location of online students in US Source: (Allen, Seaman, & Consortium, 2008) p.20 Figure 5 shows the locations in which students take online education, whether in the form of full online degree or just courses taken online. Online education in its fundamental nature deletes the 32/48

35 physical distance between the learner and the institution. However, taking a close look at figures above reveals that international students situated in outside of the US and obtaining an online degree are exceedingly rare regardless of whether the degree belongs to a public, private non-profit or FP HEI s. Instead, it is the local students who reside nearby a physical campus who is overwhelmingly represented followed by regional location of students. As evidenced in Figure 5, HEI s in the US with physical campuses offering distance or e-learning does not automatically contribute to an internationalization of the university. In other words, online learning in the US universities is not contributing to a radical change within the overall HE as one might suspect. Instead it can be argued that online learning works as a supplement. However, it must be noted that the author of this thesis did not find reliably data of universities without any physical campuses offering only online degrees. The expensive investments that traditional institutions have made in brick-and-mortar facilities and full-time faculty members will always have unique value. As these institutions adopt online learning technologies, they will be able to offer the best of both worlds to students who can afford to relocate from home and pay a premium over the cost of a fully online education. (Denning, 2011) Christensen acknowledges that pure online education is not necessary going to replace the traditional ones but rather compliment (by taking in his quote above), however this only refers to the prestigious and elite universities in his view. What can be drawn out from his statement is that the vast majority of the public and other non-profits will likely be disrupted just as his framework predicts. However, in his view there is no evidence which supports his prediction beside the fact that the cost of HE in the United States is at an all-time high which in effect increases the likelihood for alternatives. 5.4 Sub conclusion Firstly the FP HEI s are not challenging the prestigious HEI in the private nonprofit and the public sector, which in Christensen s language translates to a lack of disruption by the FP s towards the traditional HE. The reason for this lies in prestige, which is identified as the currency where HEI s are benchmarked against each other, making HE a market for positional goods. This implies a twoway competition where universities compete against each other for prestige and the students compete against each other for entry. Secondly the prestige gained among HEI s is achieved partly by level of research, public funding, facilities, student selectivity and the glue which holds the traditional HE together is accreditation which decides the rules of the game including what constitutes a degree in HE. The FP s having many elements of what Christensen constitutes as a disruptive innovation is operating within the existent system of accreditation, which again defies Christensen s assumptions that disruptive innovations are competing in a different game than the incumbents. 33/48

36 6. Massive Open Online Course (MOOC) So far this thesis has analyzed and discussed Christensen s framework in relation to the existing traditional HE system in the US. The FP HEI s is very likely not going to replace the public and private non-profit HEI s, but rather complement the overall HE need in the US. Online education as it is provided by existing HEI s which all are accredited by non-governmental agencies, has not disrupted HE and will likely not disrupt as Christensen otherwise has suggested due to several factors. Firstly, Christensen does not seem to emphasize the importance of accreditation mechanism that ensures and legitimize the notion of HE with accredited degrees being product which students acquire in order to get credentials that they can use for further advancement. Secondly, the natural consequence of accreditation system is still to treat online education as part of traditional HE degrees. This means that although more and more student s embrace online learning it will still be a degree or a service which is a product of the traditional HE in the US. In other words online learning is becoming increasingly accepted in HE, however it occurs with the existing paradigm of HE. A degree is a product, because it encompasses different courses and objectives within a given timespan depending on which level the program is in. This is what is associated with HE. If the technology can be developed so that a large population of less skilled or less affluent people can begin owning and using, in a more convenient context, something that historically was available only to more skilled or more affluent people in a centralized, inconvenient location, then there is potential for shaping the idea into a new market disruption. (Christensen, C. & Raynor, M., 2003a) p.49 However during the last couple of years another phenomenon has arisen within online learning, which is often referred to as MOOC, Massive Open Online Course. Two features distinguish MOOC s from other mode of online learning; MOOC s are designed to have a very large number of students and at the same time have an open access, implying that the cost of taking a course is either very low or free. Furthermore, they do not at the present time of writing provide a full degree as in the traditional HE. Instead they are courses provided by mostly taking two approaches. The first approach is crowdsourced interaction and feedback using the MOOC network for peer-review and group collaboration while second approach is automated feedback through objective, online assessments, such as quizzes and short video clips. 6 However the similarities end here because it is not wise to generalize MOOC s as one phenomenon as the platforms delivering MOOC s are different. This is mainly due to the degree of freedom the different platforms offfer since they are solely responsible for their material 6 An example is the Khan Academy. 34/48

37 and teaching, and more importantly, MOOC s are outside of the traditional system. This will be discussed further later on. Table 4: Definitions of e-institutions Source: (Carr, 2012) p.35 Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them? (Christensen, C. & Raynor, M., 2003b) p. 50 Consider Table 4 with the first three organization being relatively newly established with rather impressive enrollments compared to their infancy. What the first three platforms have in common is that the courses which are being taught online are designed and produced in cooperation with adjuncts and professors from the Ivy league and other elite universities, giving a perceived impression of high quality teaching due to the professors relation to well-known HEI s. Furthermore, neither of them are currently sustainable as a business model as they either are backed by venture capital or HEI making a one-off investment (Carr, 2012). In regards to Christensen s framework it should be regarded whether his framework is suitable to address the phenomena of MOOC s. First, let us hold his assumptions and criteria up against the characteristics related to MOOC s. For the sake of simplicity MOOC s will be associated with the first three platforms from Table 4. 35/48

38 Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price? (Christensen, C. & Raynor, M., 2003b) p. 50 The lower end of the market here refers to those customers, who would otherwise not have the possibility of taking a course associated with an elite HEI. As it is seen in Table 4 the enrollments are rather high. This is mainly due to the fact that MOOC s open op for the global HE market, whereas online learning until now has had a relatively low level of global reach. It does not make sense to compare the enrollments at face value because the remaining three HEI in Table 4 are accredited while MOOC s are not. It should also be mentioned that the retention rate for MOOC s are generally at a very low level. For example, a math online class had learners signed up for a course of whom only actually completed the course and obtained the final non-accredited certificate (Little, 2013). However this fits with Christensen s definition for a new market disruption where the product initially is inferior, but good enough for people who might not otherwise have had the chance to experience the same thing as the mainstream market. However, it is still unclear what effect, if any MOOC s will have on the HE sector in the longer term and whether MOOC s explosion in popularity has enough momentum to sustain their method of educational delivery system. Table 5: Average public tuition fees for undergraduates in Sources: (Baum & Payea, 2011) p. 2 It is commonsense that high quality education has been up to now has been and currently still is, for the relatively affluent people. For example the average cost of a year on campus for private nonprofit undergraduates in the US was $ in Furthermore the price of HE has increased substantially in the last few decades relatively to the pace of inflation (Baum & Payea, 2011). MOOC s on the other hand virtually allows anyone and in everywhere with a solid internet connection on a mobile device to register for a course, mostly for free or paying a fee for course certificate. 36/48

39 Initially it does not make sense to compare the traditional higher education with MOOC s. However, it fits with Christensen s framework where the most demanding customers disregard the disruptive innovation because it does not serve their needs. In the mind of the most demanding customers MOOC s do not even qualify as an alternative since they are not accredited. However, this is where one of Christensen other phrases begins to be relevant. Christensen defines non- consumption in relation to new-market disruptive innovation because it us much more affordable to own and simpler to use that, enables a whole new population to begin owning and using the product in a more convenient setting. In this relation MOOC s fits quite well, because it opens up for the global HE where students from other countries may not have the financial resources to obtain a HE in their home country or by travelling abroad. In this context they are happy to get what they can, and a chance to receive online learning by high quality HEI s seems very attractive for this segment. To use the product or service, do customers need to go to an in convenient, centralized location? (Christensen, C. & Raynor, M., 2003b) p. 50 The platform provided by the all of the companies from Table 5 provides learners to take online courses from a convenient centralized location which is usually a mobile device in such as of a laptop. Figure 6: The path of disruptive innovation Source: (Christensen, C. & Raynor, M., 2003a) p /48

40 Instead of having the elite universities as the left trajectory, a broader context is needed to explain Christensen s framework in relation to HE. The left trajectory could be generalized for the traditional HE which already incorporates online learning as a complimentary for its products, which are in the form of degrees. The right trajectory is the alternative to the traditional HE outside of the accreditation system. MOOC s is one possible contender to this position. However, MOOC s is at its very early stages and in order for MOOC s to move up the trajectory not only does it need further technological advances, or if one prefers Christensen s term, further sustaining improvement, but also the implementation of credentials which means acceptance from extern stakeholders such as governments, employers and the public s legitimacy. These factors are not accounted for in Christensen s simplified chart which is why his framework must be taken with a grain of salt and certainly not as a self-evident truth. Regardless of the scenario outplayed above, scholars who are skeptical of MOOC s warn that the essence of a college education lies in the subtle interaction between students and teachers that cannot be simulated by machines, no matter how sophisticated the programming might turn out to be. This view implies that MOOC s will not substitute the traditional HE although it is rated as a disruptive innovation working outside of the traditional accreditation system. Moreover according to this view the trajectory of MOOC s improving will not have a direct impact as for acting as a substitution threat in the near as well as in the far future. What this view instead suggests is that MOOC s will act as an extending and complimenting process to HE and in part fill out a niche in the global HE. At the other side of the spectrum, the shared view among the scholars keen on MOOC s the traditional university degree is an outdated artifact and that MOOC s can offer a new form of lifelong education better suited to the modern labor market. (Carr, 2012). It is difficult, if not impossible to predict how students will react to technological changes, however the unit of analysis should in all case be on the learning, and not necessarily how learning is achieved. If MOOC s will contribute to higher learning, if it does not already now, then there should be every reason to welcome this technology. 6.1 Possible implications of MOOC What makes MOOC s further interesting and relevant to Christensen s framework is that MOOC s are not accredited by any agency at this point of time. This means that no external body, other than the developers, can guarantee quality assurance for the courses provided. Furthermore, it is important to stress that MOOC s as we know it by now does not replace a degree as the different platforms only 38/48

41 provides courses and not entire degree programs as in the traditional HEI structure. It was discussed earlier that the underlying motive for students taking a traditional accredited HE degree was the credentials that the accreditation system provided, not necessarily the degree in itself. At the present time, no one has developed an innovative and sustainable low cost alternative to the traditional HE and that may be the reason why MOOC s are receiving a lot of attention in the media as well as in academia. Following Christensen s logic MOOC s is to be described as a classic example of a disruptive innovation. The question remains whether an online educational trend can provide an alternative to the traditional HE degrees which does bear monopoly over the traditional HE. As of now accreditation is usually granted to HEI s that provide full degrees and also single courses, but this is within an accredited institution. If the trajectory of MOOC s has to go up market, one could imagine instead of having credentials for a full degree, it would be possible to get accredited courses so each student in theory could set up their own program. In order for that to happen the accreditation system has to be revised and reinvent itself in relation to the definition of a degree. This is an area other scholars might make more research on in order reexamine the traditional education system. Figure 7: Plans for MOOC s Source: (Allen et al., 2013) p. 8 39/48

42 For HEIs, the key question is how to identify and respond to disruptive innovations, in this particular case, MOOCs. In the Babson Research Group sample only 2.6 % of the HEI s admitted to provide MOOC s which does show despite of the hype concerning this phenomena only a few of the HEI s has actually taken action. The vast majority has not decided which signals insecurity on how to actually cope with MOOC s. The research universities are the one highly likely to have MOOC s and the FP s are the ones most likely to plan to create one in the near-medium future. At this point of time it is rather naive to claim that MOOC s have changed or will likely change HE in the US as the numbers above speak for themselves. However what distinguishes MOOC s from other mode of online learning is its global dimension. Earlier it was found that the vast majority of online education is happening on a local context where the physical campus is near the online learners. MOOC s as a phenomena has completely changed that view because HE is taken place at a global classroom which may create implications not only across borders but also within the United States. The marginal cost of adding an extra student is virtually zero since MOOC s are created by electronic automation creating economies of scale. The traditional HE in physical campuses have capacity constraint either in relation to budget and/or the physical campus which can only host a small segment of students. Figure 8: Online enrollments Source: (Allen et al., 2008) p. 6 40/48

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