Openness, lessons from innovation for education

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In two seminal papers, Dahlander and Gann (2010) and Huizingh (2011) try to define openness as used in open innovation.  Here, I try to use these definitions of openness in describing openness in education, drawing some lessons for both sectors.

Definitions on openness in innovation

Although Huizingh (2011) bases its definitions on Dahlander and Gann (2010), it is easier to start with his distinction between the innovation process and the innovation outcome. Openness in terms of the process is determined by the amount of knowledge which is obtained externally, or developed internally. The openness of the outcome is determined by the fact if the resulting process or product is proprietary or made freely available for external partners.

Innovation process: Innovation outcome:  
  Closed Open
Closed Closed Innovation: proprietary innovation developed inhouse. Public Innovation: the outcome is available for others, whereas the innovation was developed inhouse.
Open Private Open Innovation: a proprietary innovation, developed with the input of external partners. Open Source Innovation: both the development as the result of the innovation are open.

Source: Huizingh (2011, p. 3)

Closed innovation is the traditional way innovations were developed. The aim of public innovation often is the development of a standard. For example, by making the PC the standard in computing during the 80’s, IBM could control part of the market for personal computers.

Another way to divide open innovation is to make a distinction between inbound and outbound innovation. In the definition of Huizingh (2011, p. 4): Inbound open innovation refers to internal use of external knowledge, while outbound open innovation refers to external exploitation of internal knowledge. Dahlander and Gann (2010) combined these types with the question whether there is money involved or not.

  Inbound Innovation Outbound Innovation
Pecuniary Acquiring Selling
Non-pecuniary Sourcing Revealing

Source: Dahlander and Gann (2010, p. 702)

Revealing seems to be used to attract collaboration, especially in situations without strong IPR regimes. It also resembles Public Innovation of Huizing (2011), in aiming to set a market standard. Sourcing refers to the absorption of external available knowledge to create new products and services. The literature suggests an inverted U-shaped curve: searching for external knowledge will be profitable up to a certain level, after which the “over-search” will become more costly than profitable.

There seems to be a paradox in openness: as Huizingh (2011) states, companies perform more inbound than outbound activities (which recently confirmed by studies of the open innovation network, http://oi-net.eu/), yet inbound activities of one organization should generate reciprocal outbound effects from other organizations?

Openness in education

As we noted elsewhere (De Langen, 2013), there are a lot of definitions of openness in education. Openness in the sense of free to obtain (MOOCs), free to use (OER) or the absence of entry barriers (Open Universities).

If we define the process as a measure of openness of the process, leading to the product, we can distinguish between free to access, free to use or even collaboration in design and production. The outcome is the education, the course or the program. Traditional education is mostly distributed in a closed form: it is exclusively for students of the institution. Traditional education is often designed and developed by a single teacher, by an internal group of teachers (both examples of closed process) and in some cases with developers outside of the own institution (often subsidy-led) or the usage of open resources and MOOCs. The Open Outcome-side describes the production of open educational products and services. The closed production of open outcomes are typically of the production of MOOCs. A situation of open production and open outcomes is found in situations where communities both develop and use educational resources. For example in the case of knowledge bases and portals, developed and exploited by communities of fellow teachers; two examples are MERLOT and FEmTechNet.

Educational process: Educational outcome:  
  Closed Open
Closed Closed Education: traditional education with an one-to-one relationship between students and teachers. Free to use: the outcome (courses, programs) are open to use, but the teaching/developing process is closed. We can distinguish different regimes:

a.       Traditional education without fees, as in large parts of Europe is practice; Open Universities

b.      MOOCs, where the product is free, but the process of developing the course is proprietary.

c.       Certain forms of Open Access, in the sense that the production process belongs to the researchers (holding the copyrights, sometimes having to pay a fee), whereas the published research results are free for the public.

Open Use of free: the use of free (open) resources to develop educational resources for traditional institutions; for example Lumen Learning offers to teach educators to use OER to develop courses and programs for usage within traditional institutions. Open Education: Open educational resources, DOCCs, communities of practice and alike.

If we look into the role of money in (open) education, than is the pecuniary side of the inbound knowledge acquisition the fact that most teachers use standard textbooks, produced and sold in a for-profit-business model by publishers. Of course, in traditional education teaching is one of the courses of income, however there are more opportunities. For example,

  Inbound education Outbound education
Pecuniary Acquiring textbooks and materials. Selling knowledge, texts and competences.
Non-pecuniary Sourcing: collaborating to acquire knowledge and resources. Revealing: collaborating to supply knowledge, competences and resources.

Another model

Another way to categorize education is based on Yunus et al. (2010). In their view, organizations optimize either financial profit or social value. On the other dimension, they distinguish the way organizations are financed: either they have to earn back the invested capital, or they don’t. In this last case, another organization will supply the funds necessary for the long term survival of the organization. Traditional HEI’s were placed either in the Not-for-profit category for public education; or in the For-profit-category for private educational firms. Interesting are those organizations (websites, portals, knowledge bases ect.) which resulted in the past years, as result of inter-organizational collaborations, subsidies or individual initiatives.

Financial Profit Maximization
No recovery of Not sustainable in the long term For profit organizations Repayment of
Invested capital

(depending on external funds)

(Traditional) Not-for-profit organizations Social businesses Invested capital

(self-sustainable)

Social Profit Maximization

Next to the educational knowledge and competences, their survival will depend on the capability to generate funds to reimburse the capital used in the production and exploitation of open education.

Literature

Dahlander, L., & Gann, D. M. (2010). How open is innovation?. Research policy, 39(6), 699-709.

De Langen, F. H. T. (2013). Strategies for sustainable business models for open educational resources. The International Review of Research in Open and Distributed Learning, 14(2), 53-66.

Huizingh, E. K. (2011). Open innovation: State of the art and future perspectives. Technovation, 31(1), 2-9.

Open Innovation in European industries (2015), study for the European Commission, http://oi-net.eu/.

Yunus, M., Moingeon, B., & Lehman-Ortega, L. (2010). Building social business models: lessons from the Grameen experience. Long Range Planning, 43, 308-325.

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

 

 

 

 

 

 

 

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.

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.

 

 

 

 

Why business models in education matter

Again, and again teachers rightfully state that there is no reason why they should take into account the business model of their course. However, on an institutional scale a business model describes the way an organization defines itself. It is not only an earning model: describing the earnings versus the costs, determining the net income of the organization.
The business model also contains collaborations, essential activities and processes and core competencies. By defining the organization in this way shows clearly what the organization sees as its raison d’être, its competitive position in regard to other institutions and organizations.

The individual teacher teaching a class in Latin may not be interested in the fact that her investment in offering an interesting program is only attended by small groups of students. At an administration level of the university, however, the imbalance between the costs of providing the class and the income generated through direct student fees and governmental subsidies. This imbalance and the financial long term effect of it can be fed back to the individual teacher, providing an incentive to change the way of teaching. In this case, sharing with other teachers over universities could be an answer to the investment costs (eq. through virtual classes, by video appearances). Yet, another measurement taken could be to when the institution sees this course as essential for its identity and does not want to share it with others. In that case, funds will be made available for teaching regardless financial shortages. An intermediary way could be to support the teacher to develop materials which could reduce the actual f2f time by offering online materials.

All these actions (innovative or conservative) require an understanding of the business model of the institution:
– why would we invest in innovation in our present education: this requires a view on the strategy of the institution and on the values of the stakeholders;
– will we cooperate and who are our partners, con-colleagues or co-creators?

A good business model can help in three ways: (1) analyses the present activities: are we still creating value for the present students and other stakeholders? (2) Given our strategic targets, are our activities still in line with these targets? (3) Given the wish for change, what does that mean for our activities, competences and partnerships?

Especially in education were the situation is complex as the stakeholder who provides the finances is not the same as the one who receives the education. Is education the service provided (towards the individual student) or is it the student with a degree who is delivered towards society? Another complicating factor is the interaction between the different business models for research, teaching, valorization and other activities as employed at HE institutions.

Again, a business model without a clear strategy or vision on the organization is like having a roadmap without a destination. If we know what we want to do for who; the next thing is to determine how and when. Describing the different business models could give an internal consistency on each major activity, but also show interdependencies and conflicts between the different business models.

Inside in the business model of an organization will stimulate innovation in a broader sense than only technology or demand driven. By aligning the demands of the stakeholders with the possibilities of the organization, possible improvements can be identified, raising the value for stakeholders, whether students, teachers, governments or society at large.

This should not mean that governments should control either content or methods of teaching, that administrations should make profits the main driver of education, but it isn’t a carte blanche for teachers to use unlimited resources in their teachings.
The acceptance of reciprocal interests and interdependencies should lead to an innovative mixture of alternative financing of new interesting teaching methods.

Education Changemakers: Business Models Matter http://marscommons.marsdd.com/business-models-matter/