Quote: Universities and business models

There are three generic types of business models: solution shops, value-adding process businesses, and facilitated user networks. Each of these is comprised of its own value proposition, resources, processes, and profit formula. Universities have become conflations of all three types of business models. This has resulted in extraordinarily complex—some might say confused—institutions where much of the cost is tied up in coordinative overhead rather than in research and teaching. A key reason why the for-profit universities and other universities such as Western Governor’s have been gaining such traction in today’s higher education market is that they don’t conflate the three types of business models.

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Universities emerged in the 17th and 18th centuries primarily as teaching institutions, but most gradually evolved to become expensive conflations of all three types of models with three value propositions: research, organized as a solution-shop model; teaching, which is a value-adding process activity; which is a value-adding process activity; and facilitated networks, within which students work to help each other succeed and have fun. A typical state university today is the equivalent of having merged major consulting firm McKinsey with Whirlpool’s manufacturing operations and Northwestern Mutual Life Insurance Company. They have three fundamentally different and incompatible business models all housed within the same organization.

Christensen, C. M., Horn, M. B., & Caldera, L. (2011). Disrupting College: How Disruptive Innovation Can Deliver Quality and Affordability to Postsecondary Education  [pp. 33-35]

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