Alston Road

OESP’s and (Non) Disruptive Innovation

"American Ruins" < From More Intelligent Life

“Disruptive innovation”, introduced by Clayton Christensen and now stretched almost beyond recognition, actually refers to a relatively unique, specific type of change in markets. A new product or service is introduced that offers a different set of benefits. Initially, the product/service is limited to a segment of the total market and, when compared to incumbents, is not especially impressive. In time, though, the value of the product/service (the best balance between cost and quality) improves and the types of benefits it offers becomes increasingly important to a larger segment of the total market.

Disruptive innovations can supplant dominant providers. That’s why they are so exciting. They don’t seek to emulate the established institutions and formidable companies, they offer something different and potentially of more value. And established providers are often unable to respond. Incumbents typically have the resources to generate innovations, but their commitments to existing customers, focus on improving existing systems, and their indifference in small, niche markets, stops them from investing sufficiently in new products and new markets.

In higher education, “badges” may be the most potentially “disruptive” innovation of all. If badges become recognized as legitimate markers of knowledge and skill (i.e. increase in value) then they could challenge certain components of traditional institutions, particularly continuing education units.

Non-Disruptive Innovation

But some of the more interesting non-traditional practices in digital higher education seek not to supplant; but to integrate with the existing model of higher education.

OESP’s or online education service providers are a good example. Well-known OESPs include 2Tor, Embanet, Academic Partnerships, Bisk Education and Higher Education Online (UK). These companies provide capital and services that enable universities to more quickly build high-enrolment academic programs. Services include market research, lead generation, admissions, faculty development and support, course development, and more; most of the elements required to develop, market and manage new online programs.

OESPs provide the capital to fund the initiative, typically between 500k and 10+ million (USD). In exchange for this investment and ongoing services, the OESP receives a share of tuition revenue – anywhere from 50 to 80% – for the life of the contract, which lasts between 6 and 10 years.  As enrolment growth of the programs is heavily dependent on the university’s brand, OESP are best served by working with “name” institutions (see, for example, USC, NYU, UNC, Georgetown, Northeastern). For its part, the university contributes the brand and intellectual capital, primarily.

For some universities, the OESP model represents a low risk approach to building online capacity. More than a few clients have earned positive financial returns and express confidence in the quality of the programs.

Unlike disruptive innovations, the OESP model does not seek to displace the traditional model of higher education. It’s not a direct challenge, but a service that can extend the existing model by adding services, skills and capital that are otherwise unavailable. Nevertheless, the OESP model is a change of practice for traditional higher education. And the involvement of commercial interests is never a simple matter. News stories have appeared over the last few years in which faculty suggested that an OESP came too close to infringing on functions normally managed in-house.

OESP are likely to continue growing. University budgets are getting tighter, competition in certain segments of the online market is growing, and the demand for online programs is still rising – particularly for graduate and professional programs. Also, many traditional colleges don’t have a clear idea of what’s involved in creating successful, scalable online programs. Basic questions are still being asked, such as “what will it cost?” (I’m reminded of the 2011 Campus Computing Project in which roughly 50% of respondents said they didn’t know if their online learning programming was actually profitable).

It will be interesting to see how the OESP model evolves, particularly as more universities centralize their online education operations and increase their investment on related in-house resources. These trends may make the decision to create a separate and distinct unit for online education – which the OESP model encourages – less logical. I suspect OESP’s will seek to find ways to ensure that their services increasingly serve the interests of the entire institution and meld, more fully with centralized services.