Richard L. Wottrich, CEO & Senior Consultant
DSI White Paper (updated), June 6, 2013, Chicago USA
More than 4.5 billion people are directly engaged in commerce worldwide today – a historically high number. More than 2.4 billion people leverage the Internet for the revolutionary information flow and market access it provides. These two factoids epitomize unprecedented trends in humankind’s progress today and they both reflect and drive a trinity of Education, Innovation and Productivity, with Education being the predominant engine of 21st century growth and prosperity.
From the Sublime – Harvard Tax-free Hedge Fund
Paradoxically, higher education is still modeled after a centuries-old monastic tradition of exclusionary practices that myopically shower enormous benefits on an exceptionally privileged few. Harvard University’s $32 billion endowment – the world’s largest – earned a 21.4% return during the fiscal year ended June 30, 2011. (Harvard University’s estimated $5.6 billion gain in FY2011 itself would rank among the top 8 US university endowments.) Yet Harvard chooses to admit merely 1,600 undergraduates annually, which amounts to less than 7% of its total applicants, or 5/100,000 of the US population. This is an infinitesimal sliver of humanity’s 7 billion souls.
Harvard reports that it spent roughly $160 million last year providing needs-based tuition assistance to its undergraduates. The roughly 2,100 tenured professors Harvard employs earned $185,000 on average last year, or approximately $388 million. The fact that Harvard University spent some $548 million on professors’ salaries and tuition assistance last year – merely 1.7% of its endowment – far less than what Harvard earns on its endowment funds – has led many observers to quip that Harvard is, in essence, a tax-free hedge fund.
To the Ridiculous – Chicago Public School System
In stark contrast, public school systems across the country are awash in debt and deficit spending. In 2011 only 7.9% of 11th graders in Chicago public schools tested as “college ready,” and just 57% of high school students graduated. Students in the system have been declining each year, but the teacher population of 23,290 continues to grow as do its healthcare and pension obligations.
Chicago teachers earn an average of $74,839 per nine-month school year, triple the U.S. per capita income and 50% more than the median U.S. household income. The teachers pension deficit is pushing $1 billion and the annual public school budget is $1.75 billion, 34.2% of the entire Chicago city budget. There is no private business model on earth that would suffer these poor results.
Traditional Education’s Failure
While it is very difficult to estimate the global population of higher education students, available data suggests that an estimate of 50 million students worldwide attend traditional colleges and universities. These 50 million students constitute just 7/10 of one percent of the world’s 7 billion population. But half the developing world’s population is under age 25, and over 140 million babies are born every year. The vast majority of them are in developing countries with the highest population growth rates, where good jobs are scarce. Doing the math, there are roughly 1 billion humans who desperately want a good education, and the traditional education model is educating 50 million of them – just 5%.
To counter perceptions of elitism, champions of higher education have suggested that the Internet would transform learning, producing digital campuses and creating “Distributed Learning.” The high priests in these temples should exercise great care in their prognostications: implicitly, they have assumed that they – entrenched administrations and tenured professors – will drive and control the transformation they envision.
Not so fast, says an Internet community that holds no special brief for endowed chairs but which instead drives innovations that break down all closed business models. Think Kodak, the Post Office, the music business and newspapers, for starters. Higher education is just another candidate for Internet disruption, deconstruction and transformation.
The Alfred P. Sloan Foundation reports that by 2006, roughly 3.5 million students were participating in online learning (e-learning) at US higher education institutions. Ambient Insight Research reports that in 2009, 44% of US post-secondary (higher education) students were taking some or all of their courses online. Ambient projected that this figure would rise to 81% by 2014.
In general, private companies – rather than the nation’s universities – are leading the Internet’s transformation of the higher education market. The New York Times Company’s Epsilen is one such company. This online education firm provides services to the Texas Virtual School Network. SSI Investments II Limited – parent company of SkillSoft Limited and subsidiaries SkillSoft Corporation and SkillSoft Ireland Limited – is another leader in online education. SkillSoft is a leading Software as a Service (SaaS) provider of on-demand training and e-learning solutions for global enterprises, government and education agencies, and small to medium-sized businesses.
PREPWORKS is another example. Winner of the 2013 Bessie Award for best adaptive e-learning platform, PREPWORKS provides K 9-12 school systems with end-of-course (EOC), test prep, and other student adaptive courses that assist school districts, such as the Florida Virtual School, in meeting their state-mandated goals. PREPWORKS provides this service at a far lower per-student cost then putting them into a bricks and mortar classroom with a unionized tenured teacher.
An IBM White Paper states that the worldwide corporate e-learning market alone reached $17.2 billion in 2008 and forecasts that it will grow at a CAGR of 8.0% to approximately $25.4 billion by 2013.
Where the Rubber Meets the Road
Entrenched establishment opposition suggests that e-learning is a solution in search of a problem. They might visit with Michael Levy, CEO of ARPAC, a packaging machinery manufacturer located near Chicago’s O’Hare Airport. ARPAC is well-known globally for high quality machines that shrink-wrap products for shipping – from bottled water to storm doors. Levy employs scores of top-level engineers, most of whom hail from Russia and Eastern Europe. ARPAC has immediate openings for a dozen engineers at salaries of $70,000 plus benefits. It cannot find them, let alone hire them.
Caterpillar CEO Doug Oberhelman, based in Peoria, IL, bluntly summarized the issue for Crain’s Chicago Business recently: “We cannot find qualified hourly people, and, for that matter, many technical, engineering services technicians, and even welders, and it is hurting our manufacturing base in the United States. The education system in the United States basically has failed them, and we have to retrain every person we hire.” Oberhelman and Levy are being failed by the entire entrenched “bricks and mortar” educational system.
When Caterpillar – and virtually every other major and middle market US corporation – cannot find educated, knowledgeable workers, they move these jobs elsewhere! Yet, our most highly-respected educational institutions’ relative non-response to this critical issue – in their continuing determination to ration the infinite wealth of education to the most highly-selective nano-slivers of our global population – risks their eventual and possibly irreversible obsolescence when confronted by the Internet’s 24/7/365 dissemination of the gathered knowledge of all human history to 2.4 billion wired world citizens.
Some universities are developing distributed learning platforms. M.I.T. has achieved some success via OpenCourseWare lecture videos (2,000+ courses complete with lecture notes, videos, exams and solutions that have been posted on M.I.T.’s website). These are referred to as massive open online courses (MOOCs) and they appeal to tenured professors in direct proportion to their own personal involvement in “staring” in MOOCs and profiting from that role. Yet the free, and freely-available, OpenCourseWare platform begs the question: Can a system that demands in-person matriculation at M.I.T. at a $53,000-a-year, after-tax premium compete with an online education M.I.T. is making available to all at no charge?
Nor is distributed learning the exclusive domain of centers of higher education. KhanAcademy, a website endorsed by Bill Gates, features more than 2,400 10-20 minute videos, with a blackboard-like background, explaining key concepts in such academic disciplines as mathematics, physics, finance and history. More interestingly, teachers have begun using these videos in the classroom to complement or even substitute for established curricula. Have such teachers brought a proverbial Trojan Horse into their hallowed halls? Quite possibly. Is e-learning blurring the meaning and delivery of education and the Socratic Method? Most definitely.
Such sites as Wolfram Alpha deliver knowledge that essentially is devoid of human interaction. Wolfram Alpha’s powerful algorithm search portal enables visitors to compare and contrast strings of concepts in a unique fashion. A visitor who types in, “China Military versus US Military,” for example, immediately would receive sufficient requisite information to write a critical essay. What would Socrates say? Perhaps more to the point, what would John Harvard and Elihu Yale say? Or do?
Higher learning doesn’t require tax-free campuses. More than 30,000 employees live and work at the giant Godrej Group’s corporate campus in Mumbai, India, manufacturing everything from refrigerators to satellite electronics. Chairman Jamshyd Godrej explains that the company provides a simple test to new engineers applying for work. Shown a basic drawing of a fulcrum and lever, they are asked to write down the corresponding mathematical equation. More than 50% fail the test. As a result, Godrej created a comprehensive engineering school on its corporate campus that teaches its engineers online and throughout India what they must know to compete globally.
Increasingly, campus and e-learning will compete directly, or learn how to cooperate. New York City Mayor Bloomberg has launched a competition inviting major universities to open a branch campus in Applied Sciences and receive New York state and municipality subsidies. Stanford and Cornell appear to be the leading candidates to “win” this bricks and mortar competition.
But Stanford also is competing with itself. German-born Sebastian Thrum, a brilliant Stanford professor and largely self-taught robotics expert, gained fame by leading the team that built Google’s self-driving car. Thrum is offering his Stanford MOOC, “Introduction to Artificial Intelligence,” at no cost. E-learning students will have access to the exact same course for which on-campus students pay $50,000 a year – including the same tests and the same assignments. In lieu of receiving diplomas, e-learning students will earn, “statements of achievement.”
When The New York Times ran a story on Thrum’s MOOC course, its e-learning enrollment surged to 130,000 or nearly 20 times Stanford’s own undergraduate population of 7,000. It is precisely this conundrum that challenges tuition-based higher education business models – charge precious few students fortunate enough to gain entrance to a college or university a very high tuition, or charge thousands of e-learning students at a much lower cost per student? This is the same model that iTunes used to blow up the music industry.
E-learning quality control most certainly will be an issue, but then higher education institutions have always dealt with gentleman’s C students, cheating, drop outs and failing students. This is nothing new. This writer predicts that an Internet-based accreditation business model soon will emerge to aggregate and track all the e-learning courses that a particular student completes regardless of source, verify student results, score course values, and accredit the “major” of their choice bench-marked against universal standards.
It is just a matter of time before such methodologies are accepted by the global marketplace for talent. If an engineer can properly integrate GPS positioning functionalities in a Caterpillar 450E Backhoe Loader so that a gas line is laid exactly as surveyed, CEO Oberhelman will care very little what campus – or series of websites – he or she attended in achieving the education required to do so.
There are many nuances that collectively define the on-campus higher education experience. There will always be a place for the few who can afford that experience, or for fields (i.e. medicine) requiring extensive hands-on instruction. But do not for a moment underestimate the enormously disruptive influence of technologies that can educate the hundreds of millions of people across the globe who otherwise would have no access to the higher education they desperately want and now can obtain on a smart phone app.
Richard Wottrich, Blog Author – email@example.com