Educating the bottom of the pyramid or of the market: the difference between Prahalad and Christensen

On first sight, the approaches of Prahalad (bottom of the pyramid) and Christensen (disruptive innovation) seem very similar. New firms offer products with less functionality at lower prices, making the products affordable for more customers, especially those with lower incomes.

It is even so that firms who aim for the bottom of the pyramid will be disruptive in their market in the sense that their new offerings will replace the old products and so the old firms.

 However, at a more fundamental level both approaches differ substantially from each other. Prahalad tries to combine social responsibility, capitalism and social welfare in a sustainable way. By producing for the millions, a small profit rate can generate enough absolute profits for a sustainable development of the firm.

Christensen describes a situation in which small firms are able to offer a product of a lesser quality for a lower price to both existing and new customers. By offering less functionalities and a lower technological quality they attack the lower end of the market, where the profit rates for the existing firms is lowest. Yet, when the last of the high-cost high-price firms has left this segment, competition will drive the price towards its zero-profit level. This will induce the low-cost firms to innovate their products, adding quality and functionalities, and attacking the new bottom of the market. This process will be continuing until the top of the market has become the new bottom.

[For non-economists: Profits is often used in several ways; here Prahalad uses the word profits for the income of the firms; at the zero-profit level of Christensen, firms have a 'normal' level of income; so not to worry, no people starve because of this kind of competition]

I see the same fundamental difference in the approach to Open Education. People and institutes involved in the production, distribution and research of Open Educational Resources do this because they see a linkage between social responsibility, welfare and offering education towards people whose access is financially or otherwise restricted.

Business models for OER are conducted in line with the approach of Prahalad. Given the need for free education for the bottom of the pyramid, how can this be organized in a sustainable way? This concentrates not only on the kind of earning models, but especially on efficient ways of production and organization.

 

Other initiatives, as Moocs and the online offerings of for-profit educational institutes, have explicit earning models. For example, most Mooc-platforms have contracts which contain regulations about the usage of the courses in commercial settings, about the usage of learning data or about future income selling student data to prospecting employers. For-profit institutions see students as customers, stripping all academic overheads, making the student an offering which is inferior in the eyes of the traditional educational sector, but sufficient in the eyes of the potential student.

This could induce a disruptive development, in which the Moocs and for-profit institutions move upmarket; each time segmenting the market more by offering the lowest quality at the lowest price, adding to this with an increasing price until they replace the traditional institutions.

 

Problem is that once offerings move from the not-for-profit towards the for-profit sector, the price mechanism will not automatically take negative externalities into account. Political agencies which set the goals for not-for profit institutions often take into account other goals. In the case of educational institutions, not only the direct effect on the carrier of the students, but also on social welfare and the relationship between research, education and economic and social growth.

One actual effect can be seen: for-profit institutions which concentrate solely on education can offer educational programs at fees which are below the fees of traditional institutions. One of the reasons for this is the fact that they have lower cost as they have not to pay for the investment in new knowledge (research). Often they work with part-time teachers, who gather their knowledge elsewhere. By acting in this way, for-profit institutions forego both direct research costs and indirect coordination costs.

Assuming education has major positive external effects on general welfare. Most functions associated with these effects will be removed as part of the reduction in quality which is part of the disruptive tendency as described by Christensen and others. In this sense, disruption of education is one of the worse things which could happen to a creative competitive society.

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Moocs and the Bottom of the Pyramid

Moocs, Massive Open Online Courses, are provided for free to large amount of participants. Tuition and assessment are peer based. They are not really Open Educational Resources as they are only offered in certain periods and the materials are not available for (re)use in different educational situations.

As a economist, I realize that what irritates me is the way these courses are labeled massive by those who offer them. A course becomes massive because a lot of people participate in the open version, not because the teacher decides to offer a massive course as Steve Downs says in the introduction to the Change Mooc. Some course have a proven track record, Artificial Intelligence of Stanford has been a success, so have the courses of George Siemens and Stephan Downes on Higher Education. Perhaps other open online courses have been less successful (in numbers of students), but also less prominent in the publicity. Of course, Moocs and other online courses will be criticized for offering a Tata Nano versus the classroom BMW (Amanda Ripley in Time US).

George Siemens’ interview on MOOCs and Open Education by Andreia Inamorato

The free offering of courses from outstanding universities as MIT, Stanford and others make good quality education available in places where otherwise no education would be accessible. Furthermore, the massive character of these courses open the possibility of applying a “Bottom of the Pyramid” kind of financing for education.

One of the more interesting business models of Moocs is the supply of a paid-for degree course, together with a free non-degree version without expert tuition. Adding to this the possibility of asking a small fee for a certificate stating that the person has participated in the program, and the possibility to sell the program to third parties, these opportunities broaden the global participation, educating the bottom of the pyramid. For example, Sui Fai John Mak shows on his blog a figure consisting of three kind of markets he expects to emerge from the present Moocs (see below).

Yet another way the philosophy of the Moocs can be combined with the philosophy of Prahalad is by asking yourself what kind of education these people need. Is it possible to rework online distance courses in such a way that institutes in the neighborhood can build programs around these ODL’s so students can take formal assignments and get formal degrees. The combination in thinking about delivering to the point courses at affordable fee, compensating the costs through the amount of students and working together with local organizations for the formal recognition of the degree.

Of course such a development has the danger of unification of education in it, the McDonaldization; “MOOC’s may provide access to a world-class education, but the product is prepackaged and standardized. And, because it is readily available, it risks diminishing both the diversification of the higher-education sector and the advancement of globally engaged students and institutions”. If Moocs become the baseline in education in developing countries, the content of education will become the same everywhere.

When there are a large amount of people interested in participating in these kind of courses, the development costs per student will be very low, whereas other institutions can use the course to offer a degree based on the Mooc, tutoring and local assessment. Again, this makes education available for people who cannot afford regular education. Another observation of Amanda Ripley, based on her experiences in Pakistan was that “ at this stage, most MOOCs work well for students who are self-motivated and already fairly well educated. Worldwide, the poorest students still don’t have the background (or the Internet bandwidth) to participate in a major way” . In the TimesHangout, Amanda Ripley remarks that it are only the higher income students in developing countries can afford to participate in Moocs.

Concluding, in themselves Moocs will not solve the differences in education level around the world. There are too much problems concerning these online courses, associated with the low success rates of students, the lack of formal degrees. But also problems with the potential participants, as a lack of money for broadband internet and other income related problems and institutional problems, for example when Pakistan closed down YouTube blocking an anti-Muslim movie, they also blocked the access of 217 students to the massive, open online physics course (again according to Ripley).

However, I think that Moocs and other ODL-courses can be instrumental in providing education in places where otherwise no good quality education is available (whether in developing or developed countries). If it will be a success depends on the conditions which will be created locally. If other institutions adopt the Moocs, if governments are supportive of these kind of educational materials it is possible that this kind of education can provide a stimulus to better education. On the side of the Moocs, they could be made available around the year as open educational resources instead of just an additional outlet for existing education.