By Rick Staisloff
The Higher Education Business Model and CBE
As part of its ongoing mission to improve college readiness and completion through the application of technology, NGLC sponsored its second cohort of Breakthrough Models Incubator (BMI) projects in 2014. This cohort consisted of nine institutions that grappled with the business model behind Competency Based Education (CBE) innovations. A critical opportunity for next gen learning, CBE models reward students for the skills they acquire rather than the time they spend in class. As such, CBE supports transformation of the student learning experience. Less well known is how CBE might impact the business model in higher education.
To explore the business model behind their CBE initiatives, BMI grantees applied a mission/market/margin framework. This framework seeks to develop programs and services that occupy a critical intersection among the needs of students, institutional strength and capacity, and the generation of resources for reinvestment.
This framework, combined with the Incubator’s iterative process, helped to focus the BMI cohort on a clear ‘job to be done’: to first assess the resources necessary to implement their approach, and then to define and track success.
Constructing a Business Model
BMI participants’ deep dive into the business model behind CBE was supported through the creation and population of a pro forma template. This template enabled the cohort to:
- identify revenue and expense structures;
- capture start-up versus ongoing operating costs for the project;
- understand project sustainability;
- capture direct savings;
- and create success measures in the form of Key Performance Indicators (KPIs).
Projecting realistic expenditures—particularly rightsizing them in order to achieve breakeven—proved to be a new and challenging exercise for a number of institutions. Participants also struggled to ensure that they reflected all costs associated with their initiative, often having to reconsider costs that were once thought to be ‘free’ since they came from existing personnel or operating expenses. Such challenges were ultimately overcome within the creative and supportive space that NGLC created for each institutional team.
The power of this pro forma tool, however, extends beyond its use as a spreadsheet. The teams’ work in creating a business model supported their shift from the industry’s primary focus on spending to a new lens addressing return on investment.
Changing the Conversation
While institutions are accustomed to considering ways in which cutting costs may improve their bottom line, the BMI teams expanded their lens to consider new revenue drivers and the ability to grow net revenue. The focus on revenue generation—especially from self-generated revenue sources—was timely given the industry’s continued decline in governmental funding. The further movement toward net revenue also responded to the external environment, as institutions are increasingly reliant on a private funding model to support their operations.
A primary “a ha” moment for the teams occurred from connecting increasing student success to a more robust business model. Each team modeled various scenarios of student activity, pricing, revenue and expense as they sought to create a sustainable model that would also provide new net revenues for the institution. In this way, the projects broke away from the current (false) paradigm under which institutional stakeholders often act as if they must choose between quality, student success and a healthy bottom line.
A Model in Action
When done well, a business model analysis serves as good storytelling, helping all stakeholders understand how investments in student success ultimately connect back to a healthy bottom line. In this regard, the application of a business model lens can serve as a myth buster, challenging commonly held beliefs that no longer serve the institution.
One institution tested its myths as it built a new business model for its CBE initiative—in this case, the creation of a new CBE bachelor’s degree program for Information Technology (IT) professionals. This ‘high touch’ mentoring program, combined with an emphasis on high tech course delivery modalities, sought to increase retention rates, speed up the time to degree completion, and reduce costs to students. At the same time, the initiative was expected to produce a new revenue stream for the college. As a first step in adopting a mission/market/margin lens, the team focused on a new pricing model—specifically, a four-month term subscription model for students.
Although they initially feared that a subscription model would lead to a reduction in revenue, the team’s pro forma analysis actually demonstrated the opposite, showing an increase in both student success and net revenue. Said the team lead: “This project drove home the truth that academic assumptions have fiscal implications and vice versa. Using the pro forma model to apply a business model lens allowed us to start a conversation across stakeholders that was long needed.”
Informing Future Work
One of the 2014 cohort’s key questions was whether and how a CBE program approach would impact the business model. CBE provides an opportunity to adopt innovative pricing models, drive revenue streams, and create new cost structures behind educational delivery. The iterative business model development supported by NGLC had a significant impact on grantee understanding of core business model components, as well as the development of robust, sustainable models for each initiative. The teams did not, however, move into more innovative business model approaches for their projects, choosing instead to graft their CBE programs onto traditional business model structures. Overall, it appears that the translation of CBE programs into CBE business models remains an area of future pursuit as leaders from across industry target innovation.
Rick Staisloff is a founder and principal of rpkGROUP, a leading national consulting firm supporting colleges, universities and other non-profits with their growth and reallocation strategies. rpkGROUP emerged from two decades of leadership positions in the higher education sector, where Staisloff developed his expertise in finance and higher education from the perspective of public and private, two- and four-year institutions, higher education commissions, and state legislatures.