Saturday, January 22, 2011

Random Thoughts on Higher Education 'Business'

It has been an interesting few months at work for me. Indeed, just as I was planning to move towards the next phase - when I start doing things hands on and apply the things I leaned over the last year or so - my personal life became all too turbulent. I lost four people I closely knew in a span of eighteen days, and my life became as uncertain as it ever was. But, then, I have this feeling that I am on to something big at work and would not want to lose my focus at any cost. Hence, I am staying the course, whatever it takes.

The reason I think I am onto something big is because I see the Global Higher Education being a growth industry for the next decade or so, and I believe my company is quite well-positioned to take the advantage. Indeed, only if we play all the cards right, and if at least some of the assumptions that we are making about the business environment hold true. I know this is a big IF and there is a lot of uncertainty in the environment. But, it is reasonable to think that the days of state funded higher education is quite limited, and the private sector must step in to fill the void.

I have debated with myself whether that is a good thing, and whether the social impact of education should be taken into account while looking at the funding model. But, then, this debate can be settled with some amount of finality this way: At the time of limited social provisions, priority should be accorded to school level education than higher education. In the developed countries, universal literacy may have been achieved, but the inner city schools are all but dreadful and vested interests, like teachers' unions, have hijacked the agenda. Resources, if any available, must go to propping up of schools, because failure of school systems will directly result in the breakdown of society. Higher education is more of a middle class thing, and this is about entering into 'professions' above all else. In that sense, funding of higher education may need to have some contribution from the students, who stand to benefit greatly from access to higher education which is still a far way away from being universal.

That way, higher education will become a business and provision through private enterprise and competition will only raise the quality of provisions in the sector. A veteran education entrepreneur recently made a point: He said while the middle classes have expanded tremendously over the last two decades (in China, up from 150 million to 800 million, in India, from 50 million to 300 million), no major country has invested in setting up publicly owned universities. Except India, I should have added, where the government expanded (and is committed to expand even further) the publicly owned HE provisions. However, I would think this is because India's rather arcane regulations have come in the way of creating an Education marketplace, and private sector failed to perform efficiently to meet the demands. Every other major country, including China, have allowed the private sector to step in. The last few bastions of public education, like Britain, is crumbling now and I hope that in the next five years, a globally competitive British For Profit Education industry will emerge. The company I work for now has all the ingredients to be a PLAYER in that industry.

While I am undoubtedly optimistic, however, the journey from here to there is not easy. Higher Education is a resource intensive business, inordinately long term from the investors point of view. The money looks lucrative, but I have seen many education businesses fail just because of wrong type of investors. I would say that only those investors who look for steady longer term returns with lower market risks, like the Pension Funds, are the suitable types for education. I know there has been a lot of Wall Street money flowing into education recently, but I would presume this is happening as a reaction to the uncertainties in the market rather than for the lucrativeness of returns. In a way, the investors are balancing their risk portfolios, by buying into education companies which promise steady state returns over longer periods. However, there is a lot of direct retail investment in education - most education businesses are relatively small in terms of capital employed - and this is where the real danger lies. It is possible to have some sort of Education Bubble, which we have already seen in the early days of prosperity in India, and a sudden dramatic failure of many players bringing the whole industry into disrepute.

The other source of risk for this sector, particularly in Britain and America, comes from the immigration environment. Education has always been a favoured route for migrants, and in an environment which is bordering on being xenophobic, education companies can be vilified as the primary conduit for unwelcome pseudo-students in these countries. The ongoing uncertainties about student visa system in Britain isn't helpful: While some of the proposals on table are good and will help cleanse the industry, the real problem is the indecisiveness of the enforcement agencies and their dwindling resources. Besides, the ongoing uncertainties are hurting the British Education Industry globally and working against its expansion in scope and reach.

I have spent my whole lifetime in For Profit education and do believe that this is not about being ugly capitalists. This is possibly world's largest 'Social Industry' which does not get the credit for what it does. In a way, I did not just have my career in this industry, I am a beneficiary too. Despite my Masters Degrees, which were earned through public institutions, my most useful qualification was my two year long diploma in Computer Programming, which got me first job, gave me the confidence that carried me through the others and equipped me with useful technical skills from the very start of my career. This was through a For Profit company, which charged me quite a sum of money at that time, but it was money and time well spent for me.

So, I am enjoying this journey and feel a certain sense of mission in this. I discover new things about education business every day. Here is one for example: I have come to realize how critical good students are for a successful higher education brand. The significance of what is said of Harvard - it is a place where America's brightest students leave their intelligence behind - began to dawn on me. The job of building a high quality education brand starts with educating high quality students, not end with them. This is a bit counter-intuitive, as the Professors would like you to believe that getting the best professors lined up is actually what this is about, and real estate owners will believe that shiny campus does it; while these are important ingredients, the creation of a high value brand starts with high quality students. This thinking is driving my current strategy. Being a small incumbent brand, my focus is now on product development, which is inherently limited in a regulated industry like Education, and this is one thing I consider as an opportunity. I am now scouting for those market niches which are relatively under-served, but attract the best and brightest from all over the world. I am working on a couple of such areas, and want to make this the center-piece of my strategy going forward.

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