Sunday, November 13, 2011

How Much Is That Dog: Strategies For British For-Profit Higher Ed In Discontinuous Times

British For-Profit Higher Education, to be clear, is only a sideshow to its highly respected public universities and colleges. The sector mainly consists of colleges owned and run by individuals and families, and despite financial successes, the governance of these institutions have not evolved much. Named indifferently as London College of such and such, it is hard to differentiate one college from another. Their course offerings are fairly similar, in Business, Accounting, Computing and Law, and the recruitment model is overtly dependent on agent networks. The only differential one college has from another is possibly the regional profile of its student population, depending on the success of the particular college in establishing a successful network in a particular country or region. The teaching model is straightforward, pack the students in rows of chairs and deliver through Powerpoint or tried and tested OHP, led by teachers moonlighting from universities or their own alumni, who not only knows the trade but helps to ramp up the placement claims. In summary, this was something of a cottage industry with decent profits and little scrutiny.

All that changed with success. One of the most predictable consequences of the expansion of global consumer society in the slumbering giants of countries like India and China was the surge in student numbers coming to study overseas. Aided by falling airfares, greater information availability due to Internet and the turmoil in the American visa system in the aftermath of 9/11, Britain, along with Australia, reaped the benefits of a huge growth in student numbers. Most of this growth was absorbed by the private For-Profit colleges, despite their shortcomings, as they were nimbler than their publicly funded rivals and engaged with the students without the colonialist pretension their university colleagues often had. Most For-Profit colleges in Britain saw their student numbers double or more in the go-go years of 2008/9, when the British government, aided by the buoyancy of the UK economy, was actively promoting immigration to import cheap and young workers into the country. Suddenly, the sector is in the spotlight - in the national media as well as on the political turf wars, an unlikely villain, clueless like a rabbit caught in the headlight.

It is all a bit unfortunate really. Just when the education market surged, at the peak of Gordon Brown's 'longest unbroken run of prosperity', the global recession began. The political masters, who hitherto promoted immigration and sought to solve Britain's social security problems by importing High Skilled migrants who pay taxes but does not draw from the pool until much later in life, suddenly had to change tune and had to hit the brake. The New Tories, who followed New Labour into power, wanted to carry out this anti-immigration agenda with their habitual racist cynicism. In their war against Non-European immigrants, they had to pick one of the two adversaries: Global banks and other service companies, who employ thousands of highly skilled foreign workers who man various corporate jobs in Britain, or the For-Profit colleges who bring the students, who in turn, work in small businesses and newsagents and restaurants. It was an easy choice to make: The For-Profit Education sector was unorganized, fragmented, poorly governed and without an united voice: They were to make little impact on public opinion and presumably, on national competitiveness. The government accordingly announced a series of changes in immigration laws and regulatory mechanism for this sector, with not-so-obscure intention of closing down much of this sector over an eighteen to twenty-four month period, and force some kind of consolidation.

So far, this plan has been successful. At least 500 of Britain's 2000 odd For Profit colleges have gone bankrupt, some more spectacularly than others, and others are clinging by the edge of their teeth, metaphorically speaking. The student confidence in the sector has completely evaporated and the shortcomings of governance standards and general strategic understanding plaguing the sector have been brutally exposed. This, alongside the Tory government's clear policy intentions of creating a corporatist For-Profit education industry, much like America, sent miscellaneous venture capitalists and American trade buyers on a shopping spree. Here is a high growth, fragmented industry, where value can be created through consolidation and scale, and that makes very good business. Indeed, the consolidation has not yet reached the tipping point, a few independent colleges still hanging around in the hope that the government will somehow reverse its stand on immigration as it starts to bite (which it has already) and the individual owners trying to extract a last minute bargain from the VC suitors. However, one knows, with a certain sense of inevitability, that all this will come to pass and a large scale consolidation of the sector will play out in the next twelve months. Indeed, some Independent colleges will survive, but this will surely depend on their ability to change their business models and adapt to the new marketplace.

Thinking about this new 'business model', one can see a few things that clearly have to happen. I can see three distinct trends/ possibilities:

First, the agency-based recruitment model, which is cheap but difficult to control for quality of students, will be gradually replaced by reputation-based recruitment mechanisms. We are talking about usual things here: Brands, Scholarships, Relationships with foreign institutions etc. The British Higher Education sector has been quite bad at doing things like this, but that would surely change. The more savvy of British For Profit colleges have already got started with local offices, scholarship campaigns, participation in source country merit tests etc., and gradually playing down the tyranny of the agents. As immigration becomes more difficult, this trend will accelerate.

Second, the business model, which is a simple value chain where students are taught in the classroom and given pieces of paper in the end, have reached its nadir: These days, most conversations are about what price the MBA. The fact that recently some colleges were caught by a BBC investigation selling degrees and diplomas is unsurprising: The products have been totally commoditized and this is a fairly likely outcome. In the new scenario, however, one would expect that the business model for For-Profit education will shift to a 'User Network' business model, somewhat like telecommunication companies, where the students will buy access, rather than just courses, to a select community. Remember, this is exactly why the elite institutions are so profitable: Harvard does not sell courses but access to its class of 2011, for example, and therefore, has a totally differentiated product. Agreed that this may take some time to build, but this goes hand in hand with the reputation-based marketing, reinforcing the proposition as well as being reinforced by it.

Third, the game for For-Profit providers so far was about getting more courses, as the supply of students were abundant and it was about finding more things to offer to get more students. This is likely to change, as we move into an era of reputation and access, where small Independent colleges will only survive if they create, and ruthlessly defend, their edge in one or two competence areas. This does not mean course and curriculum innovation will stop: Quite the opposite, the colleges will now have to create a vast rage of offerings at different levels, but this range will be based in one or two narrowly defined occupational area. For example, one of the colleges I am associated with started as a specialist accounting college, but diversified into many things, including Management Training, Economics, Health care, Tourism, Digital Media and Computing, which it proudly advertised. At this time, however, difficult choices have to be made about which areas the college can develop and sustain its competitive advantages, and a narrowing of offering is on the cards.

The sector, overall, makes an interesting, almost classical, case for strategic thinking. Here is an industry in transition, squeezed by the environment and betrayed by its inherent shortcomings, which must innovate its way out of disaster. There are trade buyers and big players around the corner, but they are as clueless about the way out as anyone else is: One can be almost certain the trade buyers so far have banked their strategies on lobbying, as they did in America, than any fundamental rethinking of the business. The colleges themselves, inefficient they may be, have the best view of how to survive, being at the sharp end of things for such a long time. Indeed, difficulties are great and we may see the demise of a pioneering industry, but there may as well be a few winners, who define the industry yet again and create the next champions of the education marketplace. There is hope in Britain being a nation of tweakers, and if such a breed exists, their time has surely come.

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