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Michael Horn

Michael Horn

Posted: May 20, 2010 04:21 PM

In Education, For-Profit Gets a Bad Rep

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If President Obama wants to achieve his goal of returning the United States to its former place atop all countries in higher education attainment by 2020, he is going to need the help of for-profit universities like the University of Phoenix, Kaplan, Corinthian and DeVry, as his own Secretary of Education, Arne Duncan, said recently. (Disclosure: the author has consulted for some of these companies.)

These schools have grown graduates three to four times faster than public and non-profit universities over the last decade; they disproportionately serve a hard-to-serve student population and out-perform their peers in so doing; they have driven innovation in online learning, student services and career services; and they have invested two to three times more in learning technologies per student than other universities.

Yet internally, the administration seems to be struggling with how to treat the for-profit universities. Some--and not just people in the administration--have proposed regulations that exclusively target the for-profits' funding. Although their frustration with specific bad actors, aggressive enrollment practices and high debt loads for students is understandable, ignoring the sector's capacity for innovation and its ability to organize and move quickly to satisfy market demands is tantamount to throwing the baby out with the bathwater. Just as there are good and bad non-profit and public universities, there are also good and bad for-profit ones.

Some of the sector's faults are the result of a few deplorable offenders; some are a result of the government's own funding policies; and some are a part of the growing pains seen with any disruptive innovation. A disruptive innovation is one that transforms a sector by offering a new value proposition around dimensions that include convenience, accessibility, simplicity or affordability. These innovations generally start as not as good as the dominant products or services in a field as judged by the historical dimensions of performance, and as such they cannot initially serve mainstream customers. Disruptive innovations therefore start at the fringes by serving people who cannot consume the leading products or services because they are too inconvenient, inaccessible, complicated or expensive, and as they predictably improve, more and more consumers flock to them.

Many of the for-profit universities fit this definition as they have taken their offerings online to propel their growth and serve adult learners and others who have historically been overlooked by traditional universities. An often-heard charge levied against these providers is that their educational service is a poor substitute for the "real thing." Yet without the convenience of these online offerings that allow them to learn anytime and anywhere, many of these students would have no alternative to gain a formal education given the demands of work and family.

The for-profit universities are not the only disruptive players to have been disparaged historically. When Japanese companies in several industries first began to make disruptive noise in the 1950s and 1960s, Americans of all stripes mocked the quality of their products and services. Within a generation, however, "Made in Japan" had become synonymous with high quality.

Drawing on these lessons, if the Obama administration really wants to change education and make it more accessible, reasonably priced and of higher quality, it should use the momentum and know-how of the disruptive innovators and prod them to move "up-market"--so as not just to expand access but also to improve quality. Historically the mantra and measurements from Washington have been about access to higher education, and the for-profits have largely delivered over the past decade. If the mantra has changed, the administration should work with the for-profits to move the metrics in a productive way.

Not only that but the administration should also find a way to make the metrics apply to all colleges regardless of tax status. The market forces that drive the for-profit institutions can put pressure on the entire market, including the non-profit and public universities, to become better. The question ultimately should not be one of for-profit versus non-profit versus public. Discriminating between these providers in this way is discriminating along the wrong category.

The goal of policy should be to unleash innovation by setting the conditions for good actors--be they for-profit, non-profit, or public--that improve access, quality and value to succeed. Tamping down on that innovation and competition will not help individuals nor will it help the country.

Michael B. Horn is executive director of Innosight Institute, a nonprofit think tank focused on education and innovation. He also is co-author of "Disrupting Class" (McGraw-Hill, 2008).