Disruptive versus destructive innovation: an answer to Paul Prinsloo

I think that the discussion on business models, innovation and disruptiveness will improve as we make a distinction between value and profit, and between disruptive and destructive.

In my opinion, each organization tries to deliver value to the outside world. Whether you supply a product or a service. Whether you aim to earn a profit or are a task oriented organization, someone has to belief your activities.

Whereas profit is the outcome of a monetary transaction, value is created by the usage of the offering: by using a product or using the products which result form a service. It is therefor that in modern marketing the influence of the user or receiver is so important: production determines the characteristics of a product or service, usage determines its value.

A monetary profit is neither a sufficient nor a necessary condition for the realization of value. Learning can add value by increasing a persons competences, by making an organization smarter or a society more egalitarian. Yet it can be very difficult to express these increases in monetary terms, necessary to determine the amount of profit.

Classical oriented economists and politicians will argue that learning will increase a person’s potential future income and that it would be justified that people would pay for their own education. This ignores the positive external effects of this education on the productivity and lives of other members of society, but it also ignores the risks of general economic factors which are as important for the realization of the potential income.

Value does not imply profits, hopefully profits do represent value.

Within the field of innovation, we often speak of Schumpeterian destructive innovation. With that economists indicate that often the creation of new things will result in the replacement of old products and services. Creativity is a source of more productive processes, of more attractive products and better services. A problem is the translation of a creative invention into a sustainable innovation. Frequently, the proof of the superiority of an innovation is backward looking. Economists can give a long list of inventions which were technically superior to other inventions, but did not survive the competition.

Disruption is something else; Christensen defines it as an invention, aimed at non-consumers and the bottom of an existing market. It becomes a successful innovation when it convinces non-consumers to use the product and slowly nibbles at the bottom of the existing market. These kind of innovations are characterized by a negative development: by removing features which are aimed at the upper part of the market, the product or service becomes less complicated and cheaper to produces. This results in a lower price. Both the decline in price as the concentration on the core features of the value offering, non-consumers will be convinced to try the new product.

Christensen predicts that the newcomer will, in time, move upwards in the market; the same propensity explains why the incumbent firms cannot counter the entry of the new firms at the bottom of the market. Given an initial position, existing customers expect the firm to add new features increasing quality and usability for the existing customers. However, this increase in quality will cause the costs of production to rise. It therefore not to be expected that incumbent firms are able to counter the entry of the new firms or even initiate a disruptive innovation in their own market.

Disruption adds additional products to total supply and can turn into a destructive force when the firm moves upwards. Creative destruction will be replacing existing products with superior competitors from the start.

Applying these concepts towards the educational sector, we have to distinguish new alternatives aimed at non-learners and alternatives replacing existing educational supply.

For example, studying physics through Youtube-movies can be inferior to an f2f education in modern laboratories. Yet, for some students it is the only way to study a subject, given their restrictions in terms of location, money or time.

Educational alternatives as Moocs can be disruptive in the sense that they offer non-learners a chance to (re)start an education by removing some of the barriers of traditional education. However, they will not be destructive in the sense that they will replace traditional education as long as they miss some of the essential features as certification and degree awarding. When they move up, for example when a firm uses Moocs as internal trainings programs, they replace part of the traditional education. Yet, they have a long way to go before free educational programs will take the place of traditional education.

(Open) Distance education is potentially more destructive than Moocs. In a world of fragmentation, where people want to find a personal mix of work, learning, personal time, there is a demand for just in time and just in case (formal and informal) learning. The supply determined approach of traditional education does not fit this modern way of life. So an open and creative approach to education could result in forms of education which will replace (destroy) the traditional 16 – 24 years oriented programs.

This depends, as Christensen et al. points out, on the way accreditation institution react. Incumberants will try to influence the quality “eisen”, to protect their own programs. So standaards can act as a barrier to entry, the same as in other sectors.

Soucrce: Christensen et al on disruption of education

So when Paul Prinslo remarks that: “In the context of Unisa, there is also ample evidence that some initiative is launched under the banner of “disruption” and “innovation” without considering the implications and impacts of these ideas on our students, staff and institutional well-being. Some of these also disrupt the core business of the institution to such an extent that the center does not hold, and that several systems cannot cope with the impact. I am OK with the idea of piloting a novel and disruptive idea alongside the main business  and then go big. But there seems to be a believe that starting small is not disruptive enough

I can sympathize with his feelings. Management at the Open university of the Netherlands also has the tendency to start developments that are criticized by the staff and students. I think that the educational sector globally is in a state of flux, ranging from financial problems of institutes to financial problems of students, from having to redefine their mission to dealing with the effects of the economic crises.

Yet, disruptive innovation has become a fashionable management term; sometimes disturbing your organization can be a good thing, often it is not. Organizations benefit from incremental changes. It shows good management: [most of the time] sudden changes indicate that management was not prepared for outside changes; incremental changes towards the new outside conditions give the opportunity to build on the existing competences and change them slowly. When the organization (management and non-management) are incapable to react to new conditions, they leave room for others to come up with creative new modes of education which better fit the new economic and social conditions. These trends could become destructive and replace educations as we know it.

Disruptive innovations are occurring in situations that traditional education ignores the potential group of non-learners increasing research efforts and raising demands on students to meet rising qualifications. The ignored group could become the target of organizations which supply a less complex and cheaper form of education.

Organizations should make a well balanced choice between stakeholders, potential students and competitors before drastically changing their existing business model.

Yet, I belief that especially the open universities of this world offer value to individual students but also to society as a whole by offering a formal education to those who otherwise would not be capable to increase their knowledge, be it a single course to increase their knowledge on a single subject, by taking several courses as lifelong learning or taking a full program as a second chance to education!!

And because a new version of something old can be beautiful:

(the original: https://www.youtube.com/watch?v=FaVDXyXqI9Q)

Disruptive innovation discredited? A personal assessment of the discussion.

The question posed by John Naughton in the Guardian is:

Clayton M Christensen’s theory of ‘disruption’ has been debunked. Can we all move on now, please?

He refers to a contribution of Jill Lepore in The New Yorker, titled The Disruption Machine. In both articles, the theory of disruption is attacked at three levels:

  • a historical level: starting with the initial meaning of the word innovation, a discussion whether “creative destruction”  equals “destructive innovation”, and some relationship between ‘the age of terror’ and the popularity of destructive innovation;
  • a critique of the case study method used by Christensen and others to support their theory; accordng to Naughton and Lepore the used definitions of success and innovation are crucial in the support of the theory by the cases. Another critique is the fact that if the chosen time horizon is longer, successful examples fail, whereas failling firms become succesfull in time.
  • not only in retrospective does the theory fail, accourding to the authors, the theory also fails to provide reliable predictions. Some investment fund of Christensen did not live up to expectations, several cases are described, in which the theory did not provide the right predictions.

Of course both Christensen (interview in Bloomberg Businessweek, June 20, 2014) as his co-author (The Innovator’s Solution) Raynor (Of waves and ripples: Disruption theory’s newest critic tries to make a splash, Deloitte University Press) did react to these critical remarks.Christensen is quoted by Drake Bennet to have said:

And then in a stunning reversal, she starts instead to try to discredit Clay Christensen, in a really mean way. And mean is fine, but in order to discredit me, Jill had to break all of the rules of scholarship that she accused me of breaking—in just egregious ways, truly egregious ways. In fact, every one—every one—of those points that she attempted to make [about The Innovator’s Dilemma] has been addressed in a subsequent book or article. Every one! And if she was truly a scholar as she pretends, she would have read [those]. I hope you can understand why I am mad that a woman of her stature could perform such a criminal act of dishonesty—at Harvard, of all places.

Raynor uses a 13-pages paper to react. If we leave the historical and semantic discussions aside, the major defense is on the case study method used. Both Raynor and Christensen point out that positions shift over time, so the different cases selected by Lepore and Naughton have to be understood in their specific market position at that point in time; providing new case studies. Also, the predictive value of the theory is a question of timing and good interpretation.

For example Christensen says:

Just so you understand, disruption doesn’t happen overnight. There are now six or eight traditional department stores in existence in North America. Let’s just call it less than 10. And Walmart is quite a large company. Target is quite a big company. So has disruption been at work in the retailing industry? It’s a question. Macy’s still exists. So—Jill, tell me, what’s the truth? If you could just be Jill’s answer for me.

Raynor also takes the Kmart example, stating:

To claim that Kmart was not a successful disruptor because it is no longer a disruptor is like claiming Carl Lewis was not a champion sprinter because he is not now a champion sprinter.

From: http://search.dilbert.com/comic/Disruptive%20Innovation

With respect to the falsifiability of the theory, Raynor points out that several cases indeed follow the theory:

Case studies are extraordinarily useful when developing theory and limning a theory’s limits. Case studies establish a theory’s descriptive validity (there is such a thing as a disruptive path to success) and its explanatory power (here is why it works). Case studies cannot test a theory’s predictive power when a theory makes probabilistic predictions. That requires a statistically valid test of a theory’s accuracy on a population. Complaining that Christensen has not proved the predictive power of disruption based on case studies is to miss this critical distinction between two completely different methods, each attuned to a very different need.

Therefore, I would like to rephrase the question with which we started this blog:

Is there a general theory of business economics?

Much of the discussion above centers on the validity of the case study method and the generalization of the theory of destructive innovation. If I may take two (handpicked, quoting Lepore) examples:

  1. Retailers, quality and price fighters.

In line with the examples given by Christensen and Raynor, several stages can be distinguished in the development of shops: Until 1948 small specialized shops dominated the market. More general oriented shops took over the market for retailers, but from the 1960’s on the large chains of supermarkets controlled the market. In the 1990’s two price fighters entered the supermarket segment. Lowering services and prices they captured a stable part of the market. The existing supermarkets tried to introduce so-called ‘own brands’ and C-brand products, but were hindered by the large overheads and fixed costs to really compete in the lower parts of the market.

Now, twenty years later, the former price fighters move upmarket offering A-branch products and specialized products. Other price fighters are competing at the low price part of the retail market.

Some conclusions, which are consistent with the theory of disruptive innovation:

-          Established firms have difficulty with combining different business models within one organization (cq shop);

-          Established price fighters move upwards in the market, imitating the old firms;

-          New disruptive firms will emerge and the old disruptive firms will have the same difficulties to compete as the firms they pushed upwards in the market.

 2. Airlines: KLM, Transavia and Ryanair.

Last week KLM had to warn the shareholders that the expected profits of KLM and Transavia have to be adjusted downwards. Transavia, is a Dutch based low-cost airline operating as an independent part of the Air France-KLM group, bought in 1991 as answer to the treat of the disruptive treat of pricefighters as Ryanair and Easyjet.

At the same time rumors indicated that Airbus, after Ryanair’s proposal to have passengers on short flights standing up, was developing new chairs doubling the capacity of the airplanes.

 

 

With this example, we illustrate two mechanisms from the theory of disruptive innovation:

-          It is not easy to find a way for established firms to copy and counter the business strategy of the disrupting entrant.

-          That disrupting firms can evolve and keep disrupting the market, contraire to the theory of Christensen and Raynor.

The two examples can be criticized of being “handpicked” and being too shallow to describe the full complexity of the cases; both true!

Yet the point we want to make is exactly that: in different situations, different components of the theory are supported. Instead of quarreling over the historical interpretation of the word innovation, what is the truth or if IBM still makes a profit or not, other questions should be asked, for example:

1. Which kind of innovations are there and what are their relative importance in survival of firms?

2. Why do we see different trends and reactions in different case studies: what are critical success factors for entrants and established firms?

3. What is the effect on social welfare of a successful disruptive innovation? Should we try to increase the speed of these kind of innovation, or try to stop it?

 

Lastly, a critique on the way which Lepore tries to protect education and health care from Christensen disruptive innovation. Disruptive innovation cannot play a part in these sectors, according to Lepore, because:

Doctors have obligations to their patients, teachers to their students, pastors to their congregations, curators to the public, and journalists to their readers—obligations that lie outside the realm of earnings, and are fundamentally different from the obligations that a business executive has to employees, partners, and investors. Historically, institutions like museums, hospitals, schools, and universities have been supported by patronage, donations made by individuals or funding from church or state. The press has generally supported itself by charging subscribers and selling advertising. (Underwriting by corporations and foundations is a funding source of more recent vintage.) Charging for admission, membership, subscriptions and, for some, earning profits are similarities these institutions have with businesses. Still, that doesn’t make them industries, which turn things into commodities and sell them for gain.

She totally misses the point of the application of business economics to these sectors. Readers leave the traditional media, turning to the free information available on the internet, students turn to Moocs, discussion groups and peer pages to find the information they need to learn, patients lookup success-ratios of doctors, choosing the best. Governments have financial difficulties, making choses about what to finance, people and institutions which donate are becoming more critical. Right or wrong, the customization of society is increased by the possibilities of the internet and social media.

Doctors, teachers, journalists and perhaps even priests have to take the preferences of their public into account. Of course, people are still restricted by their budgets, by their social class, by their networks, like before; but loyalty has declined and partly replaced by economic trade-offs.

This makes strategic analyses of the offering of an institution versus the wishes of the purchaser even more important.

Education, let’s blow it to bits or put it back? 2

A short update on Education, let’s blow it to bits or put it back? 

In February I discussed a tendency I predicted, based on the theoretical unbundling of education in educational resources (open or not), Moocs as resources and educational services which could be offered. I wrote:

Mulder goes one step further, in dividing the educational process in different stages and services. He concentrates on the division between content, which should be offered as open educational resources, and services as tutoring and grading, which should form the base of organizational income.

The economic theory of this is already older. The idea that the internet will reduce firms to their core-competences and products and services will be produced by networks of specialist, each working at the lowest prices and offering the highest quality has been presented in the 1999-book Blown to Bits of Philip Evans and Thomas S. Wurster. (not 2008 book Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion by Harry Lewis, Ken Ledeen and Hal Abelson).

Between firms and the customers will be place for intermediaries, firms giving information on the availability, the price/quality of the products and other information. Between firms, there is room for intermediaries, which only role is to bring components together, matching the demand in the market.

I ignored the last players in my blog, wrongly I must admit.

In a nice blog, Micheal Horn, did write about Unbundling and Re-bundling in Higher Education (Forbes, 7/10/2014).

He argues that online learning is a disruptive innovation and sees unbundling as a ‘likely’ tendency: “we are seeing the beginning of unbundling in courses, content, credentialing, campus life and personal growth, and more”.

However, he points out that because of the unbundling, there will also be a new trend for bundling: “there will exist a need for subcomponents that bundle things together like coaching, mentoring, communities, personal learning plans, and employer connections, as these areas are critical for student success”.

In the same line that Evans and Wurster used Dell as example for the firms responsible for putting the final product together, Horn takes Dell as the example of integrating different parts of education together.

This will result in the creation of intermediate firms offering support by selecting the best courses, the best communities or a consistency within the different parts of education someone has had.

However, in recent years we observe that the movement of firms towards their specialized core-competences is countered by the idea that firms have outsourced too much. Human resource management or account and control may initially not be seen as core competences, but when the distance between the core activities and the outsourced  HRM-department or accounting-department become too large, they lose their use as strategic instruments.

Unbundling of education can result in the loss of consistency between components of a chosen program; of frictional costs (for example a accumulation of registration fees), overlap of content and problems with the acceptance of degrees by employers.

As in the strategic paradoxes, bundling and unbundling will be a trade-off between efficiency and effectiveness; a paradox not easily solved!

The Crowd and Open Education: resilience and sustainability

Updated July 21 2014

 Update:

A relevant quotation I found in my notes:

Paul Stacey

Crowd learning

Crowd learning describes the process of learning from the expertise and opinions of others, shared through online social spaces, websites, and activities. Such learning is often informal and spontaneous, and may not be recognised by the participants as a learning activity. In this model virtually anybody can be a teacher or source of knowledge, learning occurs flexibly and sporadically, can be driven by chance or specific goals, and always has direct contextual relevance to the learner. It places responsibility on individual learners to find a path through sources of knowledge and to manage the objectives of their learning. Crowd learning encourages people to be active in setting personal objectives, seeking resources, and recording achievements. It can also develop the skills needed for lifelong learning, such as self-motivation and reflection on performance. The challenge is to provide learners with ways to manage their learning and offer valuable contributions to others.

 

Deloitte University Press published an infographic on crowdsourcing. Crowdsourcing is defined as “an approach to harnessing the power of individuals to work to solve problems in a decentralized way”.

They distinguish five different kinds of crowd sourcing, using the crowd’s creativity and knowledge (competition, collaboration and voting), its funds (funding) or its labour power (labor). According to the writers, Rob Hamill, Emily Malina and Elizabeth Pal, each form of crowd sourcing is applicable in certain situations and will be contra-productive in other situations.

The table below gives an overview of the different ways of crowd sourcing, the video has some funny examples, starting with 1714 as start of one of the first crowd sourcing projects.

 

Form Pro Contra
Crowd CompetitionCrowd competition refers to the hosting of contests in which participants work individually or in groups to come up with a solution to a given problem. The outputs may include many viable ideas or solutions.
  • creating actional solutions
  • developing prototypes
  • Generating outside ideas
  • predetermined desired outcomes
  • lack of resources to review submissions
  • building community
Crowd Collaboration
Crowd collaboration requests the input of decentralized individuals to develop, aggregate, and share knowledge and information across a pool of contributors, generally through a loosely controlled web-based platform. The typical outputs of a crowd collaboration effort are collective concepts with shared buy-in.
  • building and sharing knowledge
  • responding to emergencies
  • shared policies
  • User anonymity
  • Small and inactive crowds
  • Promoting individuality
Crowd Voting
Crowd voting is the process of turning to the crowd to reach a decision. This practice typically involves inviting participants to help make a decision based on pre-defined options.
  • Decision making
  • Rating and ranking
  • Quality assurance
  • Strategic decision making
  • Political sensitive issues
Crowd FundingCrowd funding is the process of funding projects through small contributions from a large group of participants. Crowdfunding activities are typically hosted through web-based platforms.
  • Fundraising
  • Disaster relief
  • Start-ups
  • High transparency

 

  • Ongoing operations
  • Loosely structured initiatives
  • High short term expectations on returns
Crowd Labor
Crowd labor refers to the engagement of a distributed labor pool to accelerate the completion of large-scale projects by splitting up a task into components that require little creativity or coordination but that cannot be automated.
  • Creating actionable solutions
  • Data entry and validation
  • Translation (eg language)
  • Digital archiving
  • Unstructured tasks
  • Subjective tasks
  • High-level thinking

As I argued before, the sustainability (or resilience to use a new buzz word) of business models for Open Education will depend on the inclination of people and institutions to cooperate either on the input/production side as on the user/learner/consumer side of the business model. As crowd sourcing is a form of this kind of collaboration, it could generate knowledge on the the potential success factors by reversing this table and apply the pro’s and contra’s to different systems of Open Education.

Crow Labor is one of the most used forms of Crowd Sourcing in the development of Open Educational Resources. Organisations as the Saylor.org, Merlot.org rely heavily on materials of others. However, this kind of free labour has also some aspects of Crowd Collaboration because it is not necessarily about projects which “require little creativity or coordination”.

Crowd Competition is seen in situations in which organisations as the EU, Hewlett foundation or the American government ask for proposals which will be subsidized. On an individual level, these calls will be passed on towards teachers and other educational developers to come up with the creative solutions to win the funds.

It can also be used as an instrument to start-up a new data-base or website on educational resources and programs. By setting a suitable reward, the system can generate a certain minimal critical mass, above which it will be interesting for other partners to participate.

Crowd Voting is often used to give an indication of the quality of the resources or programs. For a ranking to be functioning, there have to be enough votes and the voting public has to be something of an “in-crowd” of experts.

The remaining form of Crowd Sourcing is the financial form, Crowd Funding. According to the authors, this instrument is unsuitable for ongoing operations and loosely structured initiatives. Yet, I have the impression that several non-commercial projects depend on one large fixed subsidizer and a fringe of minor short-term donors.

Concluding, the examples of Open Educational Resources and Open Education show that the forms of Crowd Sourcing as described by Hamill, Malina and Pal is not complete; there are other situations which can only partially described by this taxonomy. Especially the voluntary participation in high-knowledge projects does not fit either the Crowd Collaboration nor the Crowd Labor definitions.

Still, the research in Crowd Sourcing should generate a further understanding of these kinds of collaboration: the free contribution and exchange of educational materials between individuals and organisations. A better understanding of these phenomena will enhance the changes of success of the Open Education movement.

 

SPB-MOOCS

A short post on something I would label SPB-Moocs: Solo Projects (which) Become Moocs.

In one of our most watched discussion shows, De Wereld Draait Door (As the World Turns) two teachers were interviewed, who have a YouTube channel, one on history, the other on chemistry.

With simple instruments, they both make YouTube video’s, preparing students for their exams.

Both told the interviewer that they originally started with the video’s because they wanted to use the time in the class room to discuss problems and concentrate on discussions rather than tell what’s in the books. It came as a surprise for them that so many students used their video’s as preparations for the exams. In the program students tell that they don’t use the materials of their own teachers any more, there is even the tale of one teacher who uses the video’s instead of teaching himself.

In Europe and the VS, governments and private companies finance platforms, university staff discusses the pro and contras of developing and using open and online courses. The papers and journals dedicate special issues to this phenomena. Yet, some teachers just take a camera and a whiteboard and start their own channel, without large financial claims (although they did argue during the show that some financial support would be nice). And they are not alone, given the next Dutch blog: http://www.newmediabrains.com/news/124/68/6-docenten-laten-klas-flippen-in-YouTube-lessen/

So, suddenly some individual project aimed at 20 – 25 students becomes a YouTube channel watched by 15.000 – 175.000 student: designed to be a small project for a small audience, became a open online course which is viewed massively.

It would be interesting if people could point to other initiatives in the comments, it would be strange if this development was a pure Dutch development.

Perhaps something to come back in the future?

Value, effort and education.

Upon the education of the people of this country, the fate of this country depends. Benjamin Disraeli

Value, effort…………

In modern business economics, there is a realization that is not so much the organization which creates value, but the organization makes an value offer and the realization of this is in the usage of the product or service by the customer.

In traditional approaches (as still in can be seen in the tax system: taxes on value added), when inputs are transformed during each sequential stage, the efforts of the firm are seen as adding value to the product. Taxes are levied on this effort, measured by the costs of the labour and capital used.

In the transformation of grain into bread, the labour of the farmer, the miller and the baker are seen to increase the value and so the price of the outputs. Yet, if the bread is not sold and thrown away at the end of the day, does all this labour add to the welfare of society? The realization of the potential value in the offering is the appreciation of the customer, in the case of bread this is shown by the price paid for the bread. This appreciation will be different in different situations. In countries with a shortage of foods, a simple bread will be sold, whereas in countries with a lot of possible substitutes, simple bread will not be valued highly. Doubling the inputs (efforts), without changing the quality or characteristics of the bread will not increase the value.

More difficult is it to determine the value of art. However,it should be clear that it is not the level of effort which determines the fact if something is valued as a work of art. Yet, the reverse is -of course- not true: most artistic work will require hard work. Thinking about the way the artistic level of something could be determined, I think it is not the price paid on the free market, or the opinion of experts but the effort of people to preserve it. At least, the efforts and costs invested in preserving art over the centuries is a better approximation of the value for society, than the money invested in making the object itself.

From The Picture of Dorian Gray

…………………….  And Education   We see different trends appearing at this time:

  1. The success of Moocs, measured in participation,
  2. The expectation that (commercial) distance education providers will have a destructive influence on the sector as described by Christensen and others, and
  3. The financial problems of different governments, where the examples of California and Greece show that education is one of the first sectors which will suffer.

The success of the Moocs can be interpreted in different ways:

  1. As a rise in demand for education which is not supported by a rise in income;
  2. A demand for training increased in the last years due to the economic crisis.

Related to the success of the Moocs is the concept of disruptive innovations as used to forecast developments in American education by Christensen and others. The success is partly explained by the price (free for Moocs). The prices for education will decline because of the separation of research and teaching: concentration on key activities being a central theme in disruptive innovation. The idea of cheaper or even free education is, of course, attractive to governments which have budgetary problems. Especially when education is not a top priority for local and national governments with liquidity problems. To summarize, learners and financers of education substitute traditional education for cheaper and free alternatives, a tendency which only will become stronger according to Christensen and others. In terms of the new business economics as described above, the key stakeholders in education refuse to create the value, offered by the efforts of the educators. Rephrasing this, the value offer of the educational institutes may not be acceptable or affordable for the stakeholders. The value of education is determined by the usage by the learners of the learned competences and knowledge. In general, we can distinguish two extreme approaches to the effects of education.

1.  At one side of the spectrum, education is seen as an important factor increasing social cohesion, democratic participation and (economic) welfare. For example, the European Union writes in the evaluation of the Lisbon Agenda:

Underlying this was the realisation that, in order to enhance its standard of living and sustain its unique social model, the EU needed to increase its productivity and competitiveness in the face of ever fiercer global competition, technological change and an ageing population.[..] These ambitious targets could only be achieved through structural reforms to tackle a number of challenges within Europe’s labour markets; tackling labour market segmentation, addressing skill needs through more and better education and training, promoting a lifecycle approach to active ageing, and inclusive labour markets. […]Education and skills policy is at the heart of creating a knowledge-based economy, but it is apparent that the EU has some way to travel in this regard.

2.  The approach on the other side of the spectrum emphasis the economic effects, especially for the individual who becomes more competent. Education, in this view, primarily produces individuals which are more competent in their work, increasing employment by a better fit between demand and supply in the labour market. More productive workers will earn a higher income and firms will earn their firm an additional profit.

In the second view, employers, employees and learners are primarily responsible for financing education as the value will only partly crystallize in the form of additional income for the learner and the employers. The broader approach of education puts part of the responsibility with society: government has incentives to finance at least the general competences of the learners, through educational subsidies. Again, effort will determine quality but rise costs, but when demand shifts to other alternatives, much of the effort will be lost. Problem with disruptive tendencies in the sense of Christensen et al. is the “catch-22” between costs and demand, which results from the move towards quality which is the standard response of all organizations in these situations. Traditional education wants to take its social responsibility, teaching collective social competences next to functional content based on research efforts. However, if society doesn’t want or can pay for this kind of education, it will end up with purely functional education, paid for by employers and employees and aimed totally to an efficient fulfilment of jobs and the furthering of individual careers.

The business model of not-for-profit organizations

Solving the big issues of our generation requires bold new business models  
Osterwalder and Pigneur (2010, 265)

In a short time span I encountered two views on the usage of business economics in not-for-profit situations. Firstly, the quote above this blog, in which Osterwalder and Pigneur(2010) claim that a business model approach could help solve present day global problems. Against this, Thompkins(2005) argues that inefficiency is an important characteristic of the public sector as it is the effect of the necessary democratic process and the required transparency of processes in this sector, or as the title of his article says: The distinctive context of public management; implying that there are different kinds of management.

In our view this seemingly contradiction is based on a misunderstanding of the concept of the business model. Although it is developed for analyzing and developing models in the for-profit sector, it is about the creation and deliverance of value. So if transparency is an attribute of the public sector, it should be represented in a business model describing a specific public organization.

This is the challenge Judith Sanderse and myself have taken on. We agree with Osterwalder and Pigneur(2010)  that the business model, and more specific the Business Canvas, can be used to increase the efficiency and effectively of all kinds of organizations, including not-for-profit ones. Hence, the main objective of Judith’s research was the development of a specialized business model canvas for NGOs. The central research question of this study is ‘how is a NGO business model canvas structured?’

 However, by using the Business Canvas for analyzing not-for-profit organizations, we have to take two tings in account:

1. the definitions of terms in the general business model will not be recognized by the managers and employees of these organizations and sometimes even lead to resistance to use the Canvas;

2. given the specific functions of these organizations, the Business Canvas will have to reflect the different attributes of these organizations to increase both the usability as the acceptance of the models.

Judith Sanderse did analyze the potential usage of the Business Canvas in the case of non-governmental organizations. To do so, she used three steps; firstly using the literature (especially that on social enterprises) to adjust the ‘Beyond-Profit-Business Canvas (see Osterwalder and Pigneur, 2010, 264-265), proposing an adjusted model for not-for-profit organizations.

Secondly, she interviewed several experts, to see if the model was usable in terms of form and variables. From these interviews she concluded that the Business Canvas should be adjusted. Different business models have to be used for foundations and ngo’s (see the figure below).

bc_Sanderse

Furthermore, the definitions have to be adjusted and clarified. In the table below the definitions as used are given.

Key definitions
Business model A business model describes the rationale of how an organization creates, delivers, and captures value.
Vision Outlines what the organization wants to be. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement which reads “A World without Poverty.”
Key Partners The network of cooperative agreements with other people or organizations (including governments) necessary to efficiently offer and distribute the organisation’s mission and programmes.
Key Activities The main actions which an organisation needs to perform to create its value proposition.
Key Resources The physical, financial, intellectual or human assets required to make the business model work.
Value Proposition The organisation’s mission, its main programmes and brand.
Mission Defines the fundamental purpose of an organization, succinctly describing why it exists and what it does to achieve its vision. For example, the charity working with the poor can have a mission statement as “providing jobs for the homeless and unemployed”.
Relationships The type of relationship the organisation has established or wants to establish with each key beneficiary or donor segment.
Programme delivery methods The method which the organisation uses to achieve its mission or programme activities to the beneficiaries.
Ultimate Beneficiaries The target group who the organisation principally aims to reach and serve to achieve its vision/mission.
Channels The methods of communication, distribution and sales used by the organization to interface with its customer/donor segments.
Customer/Donor Segments The different group of customer and/or donor segments which the organisation targets for its fundraising activities. In this component customers tend to be more related to the merchandising section of the organisation and donors tend to be related to the fundraising section of the organisation.
Revenue The income streams, this could be donations, merchandises/sales, investments or other income streams available for the organisation to work on its value proposition.
Costs The total expenses which the organisation incurred (or will incur) to implement the agreed activities.

Lastly, the adjusted model was used to analyze five NGO-s through interviews with key-managers of these organizations. The split business model was recognizable and usable according to these managers. Functioned mentioned where:

    • Understand the dependencies of the separate elements
    • Change process
    • Visualization of the organisation
    • Staff induction
    • Communication, both internally and externally
    • Alignment

Yet further research should follow the usage of the model in describing and analyzing the workings of the organizations, to see if it is possible to improve or even change the way they try to realize their goals.

Yet, despite the ultimate goal of the organization, be it the public good, education or income for the stockholders, it will require money to make our world go round.