Internet, sharing and openness; lessons from e-commerce

At the beginning of the century, the influence of the Internet on business really took off. This induced managers and scientists to reflect on the role of the Internet on the way we do business. One of the major changes was the openness and sharing. Another influence is the increasing competition. Because information flows “openly”, the possibility to compare prices, quality and other characteristics increases beyond the geographical proximity.

Education is only beginning to feel the influence of both trends. The High Level Group on the Modernisation of Higher Education has published a new rapport on the New Modes of Learning and Teaching in Higher Education. In this report, the importance of technological progress for the widening of access of HE is stressed. As they state “Online technologies provide opportunities to learn anywhere, any time and from anyone”. Non-traditional learners have access to new forms of learning which will increase lifelong learning and ongoing professionalization.

In a world were global politics become more complex and worldwide manual labour has become a commodity, both European democracy and Europe’s competitive position require an ever increasing education of its population. Creativity and smart solutions have to take the place of mass production; not only the designers and developers have to be high educated, the average labour force also has to scale up. Another interesting observation is that “The goal should be to ensure that all publicly funded education resources are openly available”. This is not only a support of the Open Educational Resources-movement, but can be interpreted broader: education should be free as mostly all public educational institutes are mainly funded by the government.

Tony Bates (2014) concludes his review of Moocs with the observation, that “[A]t some point, institutions will need to develop a clearer, more consistent strategy for open learning, in terms of how it can best be provided, how it calibrates with formal learning, and how open learning can be accommodated within the fiscal constraints of the institution, and then where MOOCs might fit with the strategy”.

When we look into different sectors, where openness plays a role, we can distinguish:

– Open as in free to use, re-use and distribute: the open source movement in the sector of Information Technology. In general there are two different approaches. Communities develop free software, whereas companies are allowed to use the free software to sell specialized adaptations (only making the customers pay for the added value). In the other case, firms give away software or products to earn money with additions to these products and services (freemium, ranging from WinZip to razors).

– open as in open access in the publishing sector, where costs are shifted from users (readers) towards producers (researchers, writers); the intermediate firms keep the same or more income. Often open access is motivated by the fact that most research is funded by public funds, so it should be freely available for the public. Publishers are then compensated for their costs by authors’ fees.

– open as in free to participate, as the Internet opens the possibility for the public to participate in journalism or quality control. Furthermore firms use customers to improve their products and develop new products and services; labeled co-creation.

– open as in open innovation, the process whereby firms ‘spin-in’  ideas and inventions of others and ‘spin-out’ ideas and inventions which do not fit into the business models of the firm, especially in the industrial sectors. IP-rights are essential as they make it possible to trade inventions which can or will not be used internally. By selling and buying inventions, the efficiency and size of innovations in society will increase. Technology increases the possibilities for innovation on a small scale. Sharing of knowledge and resources is a major force behind the MakersMovement, in which small inventors design, prototype and -eventually- distribute their innovative products or services (see Anderson, 2012).

Wiley (2014) – in his discussion on Moocs – defines openness in education as the transition of ‘open entry’ (in the sense of no entry demands from the Open Universities) towards ‘open licenses’, as in Open Educational Resources (OER), towards a possible  ‘open educational infrastructure’.

The Open Educational Resources movement strives to generate educational resources, which are shared for free (although often developed using subsidies of national governments and private institutions).  Moocs are a part of this development, but where the majority of OER is aimed at teachers, Moocs are developed for usage by learners, opening up participation.

Moocs are also, more then OER, examples of the ‘give-part sell-part’ approach to openness. In the regulations of several Mooc-platforms, we see explicit remarks about the earning potential of alternative usage of the Moocs: licensing, assessment and certification but also use a HRM-instrument and corporate universities.

This definition of openness is consistent with the 5-components model for open education (5COE) of Mulder and Janssen [2013]. This model analyses the different activities of (open) education and it is possible to un-bundle these into three components on the supply side and two on the demand side.

On the supply side they distinguish:

  1. Open educational resources (OER)
  2. Open learning services (OLS): online and virtual activities which are available either free or for payment, including assessments, exams and communities.
  3. Open teaching efforts (OTE): all supporting activities as teaching, ict-support and other roles in (distance) teaching; these activities will generally not be free.

On the demand side they describe the following two components:

  1. Open to learners’ needs (OLN): open education should be free in the sense of time, space and tempo; however, it should also be affordable for everyone.
  2. Open to employability & capabilities development (OEC): education should be open towards new and changing demands from society and the labour market, but also promote critical thinking, creativity and personal growth.

Christensen et al. (2014) uses a similar approach to forecast a more disruptive development with respect to the (American) educational sector. Distance education, the competence based approach, the existence of high quality, accredited open educational materials offers commercial firms the opportunity to enter the educational sector, aiming at low cost segments and non-consumers (of existing education). According to them, it is only a matter of time before the last bastion of the traditional mixture of academic research and education, the accreditation organizations, will fall. So unbundling education at an organizational level could result in unbundling at a sectorial or national level and a new division between open en exclusive forms of education.

Most educational programs are not financed by their students, but subsidized by governments, churches or private enterprises. Depending on the fee, the financial barriers of participation in education are substantial to non-exsting. Contrary to the (average) openness in finances, most institutions have entry barriers in terms of quality requirements. Only the Open Universities (yet not all, and not for all programs) accept all students without a formal qualification. So, although open access in a financial way exists in some European countries, where the majority of the costs is shifted from the individual towards the collective. Yet open participation is even rarer due to qualitative restrictions for non-degree learners. This is an explanation why Moocs have attracted so much attention: it is the change for many not formally qualified learners to follow relevant academic courses.

Open innovation is based on collaboration, based on trust or contracts and on bought knowledge. HEI’s have a long tradition on working together on research projects. Yet, it seems that in the field of education, both developing and exploiting courses and programs, collaboration is less common. Still, there are large opportunities to exploit the Long Tail of Education. In Anderson’s long tail, the Internet combines two factors. The distribution and marketing costs of digital materials is approaching zero, so it’s only production costs which determine the price; furthermore is it possible to reach out to more people than locally interested. In the music business this means that a Celtic classical ensemble can distribute its music towards a global public covering costs, whereas in the traditional music industry this was only possible for hits. In education, this means that it should be possible for small audience courses to survive, provided that the teachers work together and share resources.

The success of Open Innovation depends on the right attitude. It requires a realization that the organization has to absorb external knowledge and has the competence to do so. It also requires an awareness of the strengths of the organization, as the external knowledge has to be complementary with the existing knowledge and competencies. External knowledge can destruct the existing business model and help to build a new one, but only when the competencies are available to transform the knowledge in an actual business model.

This means that opening up the supply side of the educational business model, we should ask ourselves questions like:

  1. What are our strengths and weaknesses, in the services we provide towards our students, our financiers and society?
  2. Which external knowledge can lessen our weaknesses and how do we acquire this knowledge? Are collaborations possible?
  3. How do we exploit and enlarge our strengths? Can the be of use in the collaborations to lessen the weaknesses?

For example, specific knowledge could be used to develop online courses which are taught to both our own students as students of other institutes for a fee. Even the expertise to develop online courses itself could be used to make excellent external knowledge available for our own students, by seeking combinations of our excellence in online teaching, combined with the knowledge of research institutes.

So opening up on the supply side may be a case of showing the possibilities of win-win situations by combining the strengths (or weaknesses) of the different institutions involved. Opening up on the demand side, from teacher/institution to student is perhaps both simpler and more difficult. As shown above, an Open Access-model requires a shift of costs from the users towards the producers. The simple solution is the removal of all fees for students and a full government funding of the HEI’s. This can be resisted on ideological grounds. For example, the British government finances students through loans, so they will choose the HEI’js best fitted for them, challenging HEI’js to improve their education in such a way that most students chose for them. If this is a good model to improve educational quality and the knowledge level in the economy can be discussed, however, it is one of the used models.

The second barrier to openness depicted above is the use of qualitative entry demands. Of course, there are formal restrictions on entry, but institutions are often more strict than legally required. For example, in the Netherlands, the entry demands for students with a vocational degree when entering a university are very high. That is not only because they lack research competencies, or the knowledge of specific academic subjects, but also because educational institutions in the Netherlands strive for the best students. The flexible part of their budgets depends on the success ratios of students and the amount of degrees awarded. By discouraging the lesser students, success ratios will be enhanced and for every student the “degree bonus” will be received.

Openness will increase experimentation, which will lead to a certain amount of failure. Not every (open) invention becomes a sustainable innovation and not every individual starting an academic program will become a successful student. Yet, without experimentation no successes too!

Remaining question of course is who is going to pick up the bill of the students’  “free lunch”?

Live BC – Before College / AD – After Degree according to 9GAG http://9gag.com/gag/aRPPPxM?ref=fbp

Literature:

Anderson , C., (2014) Makers: The New Industrial Revolution, Crown Business

Bates, T. (2014), A review of MOOCs and their assessment tools,  http://www.tonybates.ca/2014/11/08/a-review-of-moocs-and-their-assessment-tools/  , accessed November 2014

European Commission (2014), Report to the European Commission on New modes of learning and teaching in higher education, October 2014, ISBN 978-92-79-39789-9, doi:10.2766/81897,  http://ec.europa.eu/education/library/reports/modernisation_en.pdf , accessed November 2014

Mulder, F.,  B. Janssen (2013, in Dutch) Open (het) onderwijs, Surf Trendrapport, http://www.surf.nl/en/knowledge-and-innovation/knowledge-base/2013/trend-report-open-educational-resources-2013.html (accessed October 2014);
English version: https://www.surf.nl/en/knowledge-and-innovation/knowledge-base/2013/trend-report-open-educational-resources-2013.html

Wiley, D. (2014) The MOOC Misstep and the Open Education Infrastructure, September 18, retrieved September 30,  2014, http://opencontent.org/blog/archives/3557

Wiley, D.,  (2014), The Open Education Infrastructure, and Why We Must Build It, July 15, 2014, http://opencontent.org/blog/archives/3410 , accessed December 18, 2014

 

 

 

 

 

 

 

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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)

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.

 

 

 

 

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

At the end of the last century some business theorists saw the start of a new development. The combination of technological change and an increasing competition between firms would result in a concentration on the core competencies of firms. This has two results: every firm concentrates on the tings they do best. Survivors of the competition will produce the best for the lowest costs. If every firm does so, and the B2B system is organized well, customers get the best quality for the lowest prices.

Of course, recent years showed a mixed pattern. Concentration in the banking sector, combining different financial products and services within one organization, ignoring the specific competencies necessary (including control and organization) is one of the causes  of the financial crisis. Yet, as result of this crisis, we see an increase in start-ups, employee-buy-outs and the emergence of other forms of small enterprises.

It would be interesting to see what the industry triggers are which rule concentration versus fragmentation, but also success versus failure in the different industries.

Technological change and didactic experiments have broadened the variation of digital education with the introduction of Open Educational Resources and Moocs.

In line with commercial business we have seen two trends emerging.

So let’s blow it to bits ………………………

One trend is shared by economists as Christensen and educational managers as Fred Mulder (UNESCO-chair OER). Both envisage a division within the academical sector. Christensen sees a division between research and education as a disruptive factor in the educational sector. E-learning provides a vehicle for the emergency of low costs mass education provided by organizations which concentrate on the educational process, without the burden of academic research.

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.

** Added 13-02-14: As pointed out by Ben Janssen as a comment to this post, he and Fred Mulder stop here with their analyses (also see their chapter Opening up education in Trend Report: Open Educational Resources 2013). The next text is my augmentation of their arguments, not their reasoning.**

However, if different products and services within the educational sector can be offered using different business models, there is no reason why they should take place within the same organization. If all organizations concentrate on the activities which they do best (making materials (Moocs or otherwise), tutoring, grading), the combination, the fragmented model, should produce the best and most effective and efficient education possible.

Both the individual student as society as a whole will gain as education becomes more affordable, public subsidies can decrease and quality increases. Christensen, therefore, concludes his paper with a set of advises for the public sector to realize the predicted benefits.

Of course there can be several drawbacks: in the age-group of 12 – 24 education is also about socialization, which is absent in the fragmented model. Also, there can be a discussion if academic education is possible without fundamental research; although the best researchers are not necessary the best teachers. Lastly, the advantages of the fragmented model ignore so-called transaction costs. Students have to select the best teaching organization and grading institute, but also the best combination of those two. Teaching organizations have to search for information on the grading requirements and the best (open) educational resources. The government has to inspect and accredit several institutes. In contrast to Open educational resources and Moocs, the workings of the open market are not free.

Or put it back …………………………………….

Another aspect of the fragmentation into core-competence organizations is the need to cooperate. This cooperation can result either of a spontaneous organization, as we know of complex dynamics, or it can be the result of an intermediary organization. For example, Laura Czerniewicz sees as one of the reasons to be engaged with Moocs is the fact that it  “gives us an entry to talking about online learning …. with people with whom we have not had those conversations before” and  there is room to “experiment”  with new online materials.

From: http://www.workingpoint.com/blog/free-tools-for-entrepreneurs-collaboration/3591

Another interesting point Laura makes is that there is room for niche subjects. As Anderson has pointed out in his theory of the Long Tail, is that small percentages of the total demand can generate large numbers when the materials are available electronically and world wide. Some courses cannot be organized because of the lack of local students. If different organizations work together, they can combine the local interest into a sustainable (inter)national group of students. The same can be done in the case of to few qualified teachers on a special subject: by using the new technologies it should be possible to teach in different locations without extensive travel.

Again using the conclusions of research in the field of business co-operations, an interesting phenomena is that firms who compete heavily on the consumer side, will cooperate at the backdoor. For example, beer companies do their best to convince you that their beer is the best fitting with your life style, is the cheapest or the best quality. However, in most Western European countries all beer is sold in the same bottles and crates as the distribution and retribution of the bottles is organized together.

Question for educational organization is: what do you want to be? What is the identity you try to communicate towards your students? Given this strategic identity, you can determine your core competencies and resources. You can also determine all the non-core activities and resources.

These are the things which could be outsourced or developed in a common program. Courses like mathematics, statistics or English are often just secondary to the major program, international business, European law or psychology. Resources which could be freed by cooperation with other organizations could be used to enhance the strategic profile.

To me, working together to improve the quality and efficiency of education on a international scale seems a more interesting perspective than decreasing our organizations into atomic cores which orbit the potential students without any sense of curricula or programs; being totally dependent on the authority of some external agent who sets the requirements for a degree. Yet, if education is left to the open market either because of the ruling ideology or because of the lack of public funding, there is no guarantee that cooperation will overcome competition.

Moocs, education from service to product and back.

At this moment, all kinds of enterprises experiment with the change of “Product Dominant Logic” towards Service Dominant Logic”.  Value creation is seen in the usage of a product, which implies that the interaction between supplier and consumer becomes more important. We don’t sell simple products anymore, but the product is part of a consumer-experience and the firm accommodates this experience. Products become services and customers co-creators, interaction becoming a major competitive force.

In education, however, we see an opposite movement. Distance learning, whether open or not, involves the translation of the didactical interaction, the presentation of the content and the experiences of the teacher into an electronic product, which could be uses independent of the individuals who made the online course. Again, because of the required quality and completeness of the course materials, a good online distance course will be much more expensive to develop than a face-to-face course. The quality and completeness are requirements which follow from the fact that the student should be allowed to study most of this material independently from tutors or peers.

By packaging the teacher into an electronic self-sufficient educational product, education moves from a service orientated sector towards a product orientated sector. In a sense it is showing a shift seen before in the performing arts. Baumol showed that labor productivity did not rise for a long time in performing arts; a performance of King Lear did require a standard amount of actors and the amount of spectators was constrained by the physical possibilities (space and time); leaving the ration spectators/actors roughly constant. However, through movies, television and –later- internet made it possible that the same performance was seen by millions of people, over and over again. So this altered the ratio spectators/actors largely, reducing the costs per spectator to almost nil.

The same applies for ODL: whereas production costs are above the development of face-to-face education, once the product is available, the delivery costs depend largely on the amount of students interested in the course. So if the course becomes Massive in usage, the delivery costs will go towards zero, justifying a free and open supply of online courses. In this sense, ODL is the answer to stagnating marginal labor costs in education and the logical  way to increase total factor productivity through capital intensive innovations.

The declining marginal costs do not solve the problem of covering the initial cost of development. At this moment there are three models developed to cover these costs:

  • Institutions bear the costs themselves for different reasons: for example marketing motives, the universities as MIT and the OU-UK who were frontrunners in OER reported on the rise in new students; others invest in potential future earnings by selling the program to third parties.
  • Institutions and the participating individuals use materials which are developed in a different context(regular programs) for which is paid by students and the government thereby reducing   the investment in ODL or Mooc.
  • Several governments and private foundations funded initiatives in the OER-movement; for example the Hewitt foundation, the Gates foundation and at present the Obama administration.

Of course, institutions do combine the three sources of funding to reach an optimal solution. The shift from education as interaction towards education as a product does not only provide the possibilities for a commercialization of education, this shift is expected to generate new sources of income, as described by different authors [ 1, 2].

In line with the Bottom of the pyramid –approach of Prahalad and the Blue-Red Ocean approach Kim and Mauborgne Moocs are the ultimate version of this development: strip your product of every unnecessary feature, leaving the bare supply which meets the demands of the customer. The decline in costs (and price) will make the product widely available, reaching customer segments comparable products will not.

This commoditization of products results in a downward spiral, were competition brings down prices and quality in a shark infested ocean, coloring the water red as only “the strongest survive”. Yet, several thinkers have suggested a way out of this situation. By moving from the commodity towards an experience, seeing a service instead of a product, firms can add unique features to their product offerings.

It is interesting to notice that what took the private sectors decennia to develop, is adapted by the educational sector within two years. Fred Mulder, the Unesco-chair on open educational resources,  proposed a system in which the content was separated from other educational features as tutoring, assessment and  certificates; describing a kind of Mooc before it really existed, but also foreseeing that independent sustainability requires additional sources of income. Thomas Friedman implicitly describes the flipped class room:

Therefore, we have to get beyond the current system of information and delivery — the professorial “sage on the stage” and students taking notes, followed by a superficial assessment, to one in which students are asked and empowered to master more basic material online at their own pace, and the classroom becomes a place where the application of that knowledge can be honed through lab experiments and discussions with the professor. There seemed to be a strong consensus that this “blended model” combining online lectures with a teacher-led classroom experience was the ideal.

In these approaches Moocs become a kind of electronic text book, used by others in their education. It will become a matter of time for the suppliers of the Moocs to ask a contribution of either the students or the institutions which make use of their materials. Yet, if this is the only contribution of Moocs to education, this is hardly to be called disruptive.

In several publications, we can see that Coursera, edX and Udacity are thinking about alternative earning models. These models all involve some kind of service to accompany the electronic lessons within the Mooc.  So in this sense, Moocs are no disruptive innovation, nor a treat to traditional education. However, Moocs can be a change agent in the sense that they facilitate educational innovations as flipping the classroom, integrating learning and working or stimulating quality (why sit through a boring class when you can take the content from a first degree university or teacher).

Also do Moocs open up education for people who otherwise would not be in a position to attend classes. This will, however, depend on two factors:

  1. The attitude of employers to free online courses; will they have a civil effect or will employers still hold onto official degrees?
  2. Openness in Moocs should be redefined not only in terms of barriers of entry, but also in the availability of the course over the year.

Within two years, Moocs become full circle. From a publicly founded service related activity (education) towards to a free product orientated electronic course, a commodity; towards a privately funded experience by adding exclusive services to the free commodity.

Creative Innovation thanks to the wisdom of crowds

In this blog I would like to return to one of my earlier central themes: business models, co-creation and collaboration. As the Business Canvas of Osterwalder shows, there are two linkages between the value proposition and the customers: the customer relationships and distribution channels.

One of my students, Rick op den Brouw, wrote a Msc-thesis on critical success factors of co-creation. Based on nine case studies, he concluded that -among others- the chosen strategy of co-creation and the actual business model not always coincide (4 of 9). However, most of the theoretical expected results of co-creation, as an increase in sales and a reduction in risks, were realized.

©Business Model Generation by Alex Osterwalder & Yves Pigneur

Romero en Molina (2011) try to describe co-creation on a more concrete level. The role of the customers changes in this approach. No longer are they seen as the destroyers of the value produced by the firms. Instead, the act of consumption is seen as the ultimate contribution to the creation of value. A product or service not consumed is without value.

In this process of co-creation of value are several possible partnerships of the consumers.

  • Co-designers, in which customers are used as partners to generate, develop and test new ideas.
  • Innovators, where organizations give so-called toolkits to make their own products and services; the knowledge gathered in this process is used to improve the original product or service.
  • Marketeer/Branders, customers become marketeers, for example for event marketing or lifestyle marketing. Viral marketing, on-line word-of-mouth commercials is mentioned as one of the most effective instruments.
  • Social Corporate Responsibility, by entering a dialog with the customers as stakeholders, the organization can reach a common perspective with respect to the effects of a product or service on the environment. Customers are not only involved with the CSR of an organization as passive clients, they participate actively by using the products or services.

Technical and social developments facilitate collaborative networked environments, in which organizations collaborate with so-called con-colleagues. Romero en Molina (2011) call these networks collaborative network organizations (CNO). Although these play a central role in Prahalad and Krishnan’s co-creation, Romero en Molina (2011) do not go into the role of the CNO’s in co-creation.

Next to the organizations do customers organize themselves in on-line communities; Romero en Molina (2011) call these Virtual Customer Communities (VCC’s). The VCC’s are aimed at discussing shared experiences with products and services.

These communities can be used to realize eight different kinds of co-creation:

1. Adjusting Products (IKEA);
2. developing new products (Procter & Gamble);
3. Feedback and evaluation (Microsoft Knowledge Base);
4. Mass-customisation (NIKE);
5. Using customer creativity (LEGO);
6. Developing new services using old services (TeliaSonera);
7. Real-time marketing and adjustments to services (FEDEX);
8. Personified value and knowledge creation (IPod/Itunes).

The examples above require new core-competences. To realize the diversity of demands, to react to the increase agility and the increasing complexity, an organization has to be flexible, agible and adaptive.

In the contacts with (potential) customers and co-creators, the Virtual Consumers Communities play a central role. To stimulate the creation of the VCC around your products or services, Romero and Molina (2011) give ten tips:

  1. Invite the right customers, keep the community private and be familiar with the essential characteristics of the customers (which is more than the geographic or demographic facts).
  2. See members of the community as advisers, not as simple marketing instruments.
  3. Focus on the interests of the members, not necessary on those of the organization.
  4. Create common activities and rituals.
  5. Be open and honest, even as the facilitator of the community.
  6. If you want information, ask for it.
  7. Listening is better than talking.
  8. Don’t ignore the negative, learn from these comments.
  9. Don’t ask to much.
  10. Communities are about people, not about technics.

Romero en Molina (2011) concentrate their analyze at the customer side of the organization by describing the success factors of the VCC’s, giving less attention to the collaborative network organizations (CNO).

The research of Bengtsson en Kock (2000) concentrates on collaboration, especially on those firms which are both competitors as collaborators. They analyzed several companies in three different industries. For example, Skega Ltd. and Trellex Ltd. worked together developing new materials, whereas they are competitors in the field of lining materials. In the deary industry, companies work together in developing means of transport, but simultaneously protecting their geographical markets. In the beer industry, bottles are standardized so the collection of empty bottles can be done in cooperation  whereas they compete through lifestyle – marketing and brand loyalty.

The conclusions of Bengtsson en Kock (2000) are:

  • heterogeneity of resources stimulates collaboration;
  • firms collaborate on the input side of the organisation, whereas they compete on the output side;
  • – the decision to collaborate or compete is a strategic decision, it involves the position of the organization within the network;
  • individuals can not be responsible for both collaboration and competition;
  • the combination of collaboration and competition within the same organization will give rise to internal conflicts and stress, which should be addressed by the top management.

Combining Bengtsson and Kock (2000) with Romero and Molina (2011) we can state that with respect to the development of a N=1/R=G strategy, involving co-creation and networks, organisations have developed good practices with respect to the consumer side  but the development of virtual network-organizations lags behind. The rise of the Organization 3.0 (Marco Derksen) might be predicted, but not yet realized.

Literature:

Cover of "Business Model Generation: A Ha...

Bengtsson, M., S. Kock (2000), “Coopetition” in Business Networks—to Cooperate and Compete Simultaneously, Industrial Marketing Management, Volume 29, Issue 5, September, Pages 411-426

Romero, D., A. Molina (2011), Collaborative networked organisations and customer communities: value co-creation and co-innovation in the network era, Production Planning and Control: The Management of Operations, 22: 5-6, 447 -472

It’s not a market if no money changes hands! An answer to David Kernohan

David Kernohan ‏@dkernohan

@IHEtech @FrankOUNL it’s not a market if no money changes hands!

Inside Higher Ed quoted Simon Nelson (CEO of Futurelearn):

“Until now, this market has been dominated by companies based in the U.S., but with 18 U.K. partners, we are determined to provide the smartest and most engaging online learning experiences and revolutionize conventional models of education”

and twittered: British #MOOC provider expands and eyes India market.

David Kernohan replied to the InsideHigerEd-tweet and my retweet with the text above.

As English is a second language to me, I first consulted some dictionaries for the meaning of market (Webster, Cambridge, Oxford). There is some consensus that it can be different things. Either a real or abstract place where people trade goods or services, or the demand for something. As a verb, it can be understood as marketing or shopping.

Taking the quote above, I would say that the CEO of Futurelearn indeed sees the learning and education as something for which is a demand, so Moocs should form a supply meeting this demand. If money will change hands directly is to be seen but that each educational offer has a financial aspect is certain.

Although I don’t think that I have to defend the CEO of Futurelearn; I found several reactions interesting in the sense that it seems to be “not done” to question the effect of Moocs (also see Cathy Davidson). In a discussion last week, every question with respect to the learning effect, the high dropout rate, the high level of lurkers; not participating in discussions, etcetera (MOOCs and the AI-Stanford like Courses: Two Successful and Distinct Course Formats for Massive Open Online Courses) were countered with the argument that Moocs are free, even when people do not participate, do not finish a course or do not learn anything from the Mooc, who cares?

MOOC

MOOC (Photo credit: Sarah_G)

Well, we should for different reasons. Firstly, if Moocs are ineffective in delivering education, the effort of teachers, multimedia specialists and administrators had been better directed in another way, providing other kinds of courses. Even if courses are offered for free, producing them involve costs and labour hours which could be put to another use.

Secondly, I think Moocs offer a very interesting alternative to Open Educational Resources and the possibility to develop sustainable (business) models in which the free provision of valuable education worldwide will be possible.

On the input side, Moocs use courses which are developed for brick-and-mortar universities. Most courses are used for the on-campus students during the regular semesters. An on-line translation of these courses is made publicly and free available. So the additional costs of the online course are only the added costs of the recording and changes made to make the course more independent of the face-to-face situation. Of course, as I have argued earlier, a full distance course would be more labour intensive and so more expensive than the online copy of a regular course. The usage of Moocs to increase the public of the original course could be seen as a more efficient use of the public subsidies which were used to develop and deliver the original course.

In several publications, earning models for Moocs are suggested and seem to be translated into contracts. Among those are data-mining using the email addresses of interested students, marketing of the offering institute, advertisement space or selling the course as an in-company training. The Moocs also offer opportunities for other institutions. Using the Moocs, they can offer degrees within their own institution or in cooperation with the original provider of the Mooc.

So both on the input as on the output side of the educational system, Moocs can help the educational system to become more effective. However, an important assumption by this is that both the original course as the online massive translation of this course are worthwhile to begin with.

If the dropout rate is high because the content or the didactical form of the course dishearten people to accomplish the course, disappointing and discourage people to participate in distance higher education later on:

  • The efficiency on the input side is gone;
  • The effect on the total level of education of a country is lost;
  • No one would be prepared to pay for a commercial usage of the Mooc.

To conclude:

  1. If there is a formal market or not; money is used in the production and exploitation of Moocs;
  2. The usage of scares resources requires that these are invested in the most effective way, whether this effect is calculated in monetary terms, social benefits or civil rights.