Applying the Business Model to Education: Current Failures, Future Possibilities

In recent years, there has been a growing trend to view educational institutions as businesses, assessing them in terms of business models and measures. Consistent with such models, institutions are required to justify their existence based not on criteria such as quality of faculty or resources, but on whether they:

  1. satisfy a current demand,
  2. anticipate a future one,
  3. keep their clients happy,
  4. continuously increase product offerings (courses/programs) and sales (enrollment), and
  5. positively balance their books.

This trend arose partially from the need to move away from the subjective and over-emotional manner in which education has been traditionally approached (vague references to intellectual maturity and greater good) and was encouraged by the increasing reliance of educational institutions on state or private “investors,” who demand increasingly measurable, objective, short-term “return on investment.”

Conceptual and Practical Problems with the Business Model in Education

In the business model of education, the institution is viewed as the “service provider” and the students are viewed as the “clients.” The only tangible and measurable components of the transactions between the two in the current version of the model are the fees the students pay to attend an institution and the degree (“product”) students receive at the end of their residency at the institution.

However, unlike any other business transaction in the US, payment of the fees does not guarantee that the “clients” will:

  1. always be right (by definition, the opposite is most often the case),
  2. receive the end product (the “provider” actually delivers the “product” based on criteria other than fee payment),
  3. be able to return the end product for a refund, exchange, or credit if it does not fulfill the expectations raised by the institution (there is no system in place to hold providers accountable for their products), or
  4. get a refund if they eventually change their minds and decide not to attend the institution.

To stay consistent with their current business model version, institutions would have to either:

  1. provide degrees upon payment (I do get several emails per day advertising just that), eliminating in the process the degrees’ value and therefore the institutions’ reason for existence or
  2. issue refunds to students that do not earn the degrees, permitting noncommittal students to take up resources and bankrupt their business.

Hypothetical Solution

One could envision a two-stage model in which the provider-client roles switch half way through the paying-fees-receiving-degree process.

Stage 1: Institutions as Service Providers, Students as Clients

In this stage, students pay a fee. In return they get access to resources that facilitate and structure learning, such as:

  1. qualified, accomplished, passionate instructors,
  2. comprehensive, manageable, and timely curricula, and
  3. physical and virtual facilities that promote retrieval and dissemination of high quality information related to the educational area they paid for.

These resources are clearly spelled out in the institution’s mission/advertising/contract with their “clients” (through admissions policies, for example). After the service has been provided (e.g. at the end of each quarter), clients have the right to evaluate the service they received and examine whether it fulfilled the admissions contract. If it has not, they should be able to request remedies such as:

  1. improvement in instruction/curricular resources and
  2. re-offering of a course for a reduced or waved fee.

If these requests are not satisfied, students should be entitled to a refund. This is where the first stage of the transaction ends.

Stage 2: Students as Service Providers, Institutions as Clients

In this stage, institutions “pay” students with a grade and/or degree. Degrees are the currencies of educational institutions. Their value has been earned through the universities’ work and, like all currencies, degrees carry a proof/promise of value and can be “handed over” in return for employment (among other things).

Once students have completed stage one and have accepted the educational service they received as fulfilling the admissions contract, the institution demands that students demonstrate that they deserve the grade/degree. Students do this in the form of:

  1. exams,
  2. tests,
  3. submitted projects, etc.

In stage one, it was up to the students to assess whether the institution provided them with what was promised in the admissions contract. In stage two, it is up to the institution to determine whether or not the students can provide the “service” necessary to earn the degree, which constitutes a certification that the recipient has demonstrated thorough knowledge of the topic the degree is for.

Staying within the business context, the reasons institutions would enter stage two and require proof that the students deserve the “payment” (degree) cannot be of the vague, education-for-the-greater-good kind. In other words, it cannot be about ensuring that the students have grown intellectually, are better and more knowledgeable and experienced individuals, and can better serve society. Rather, the reasons for requiring proof before handing out degrees will be about ensuring that the promise this degree makes to the world is true (the promise that the recipient has demonstrated thorough knowledge of a topic and has acquired certain certified skills). The motivation is that ‘true’ degrees result in:

  1. happy employers of the degree recipients,
  2. trust in the institution,
  3. demand for recipients of the institution’s degrees, and, consequently
  4. increase in the institution’s business, the ultimate measure of any business’s success.

Such an approach to education-as-business and to the meaning of a degree would be more consistent with the scope of a true business model. The question that remains is, “Is this what we want education to be?”

2 thoughts on “Applying the Business Model to Education: Current Failures, Future Possibilities

  1. Too often when people look at business models and education they assume the student is the client. Not so. The community is the client.

    Let’s look at public K-12. The entire community buys the product through taxes and has an expectation of the product. The product is the student graduating with a pre-determined set of skills: reading, writing, arithmetic, but also more elusive skills such as citizenship and responsibility. Think of students like a car that we expect to run, stop and do a pre-determined set of things like defrost the rear window.

    When public school began that set of expectations was clear–the three Rs–and because schools were local and paid with local property taxes these service providers were pretty responsive to the needs of its clients (the community). Our world is more complex and global, and communities expect our schools to prepare students for every possibility. Public schools also need to be responsive to, and show respect for, the diversity our modern world demands. So, religions, race, gender and other roles, previously simple, are now making complex demands as well. Thus, the demands of the client/community is in flux and a bit muddled. No service provider can meet such vague and changing demands.

    Enter NCLB. In defining outcome with clear standards the public schools are expected to teach towards that target. Each year schools are tested, and those results are released to the community at large. As payment has shifted from local taxes to state and federal, those larger entities now assume more of a client/community role and thus demand satisfaction, or withhold payment.

    What does this mean for schools? In short, service providers (aka schools) are required to meet the needs of the client/community. The students are merely product. This means that the needs and wants of the students are immaterial other than what makes them meet the expectations of the community. Learning does not need to be fun, and teachers do not need to be liked other than how that succeeds in creating a better product (students will skills).

    One problem with looking at students as cars, though, is that some people automatically turn to being “old school” and harsh. But that does not work for all. Let’s remember that NCLB stands for No Child Left Behind. Graduation rates in the past were horrible compared to today, but our economy allowed for students to drop out and still become productive members of the community. Students also graduated with skills far below the standards because they showed up. Now, our client/community expects all students to not only graduate, but to have the skills expected at each grade level. How to get there?

    This is where free and reduced lunch, counseling, sports teams and fun come in. What motivates students? What provides the support and motivation required for students to learn? As each student/product is different, schools need to be flexible, but they also need to get the job done for each student. If they do not–if some children are being left behind–then they need to reexamine what they do and change accordingly.

    The community as client is not new, but in examining what motivates students and supports them schools have mistaken students as clients, and not products. Our society used to look at students as the children they are, and do what was best for them as a matter of course. At some point schools began to ask them what they thought, and then catered to them. There is an always-moving but clear line between getting feedback and responding versus thinking they (and their parents) know best. Schools are, at best, partners in providing what the client/community deems worth paying for.

    Much of the current frustration in education comes from these confused roles. Not all students respond to the traditional curriculum, yet students are clearly not self reflective nor honest enough to determine their own needs. Schools no longer teach, but facilitate, and the debate of what to do with those not meeting standard is complex and frustrating because what works for that shrinking under served product is hard to determine. Their failure also calls into question to experience of the service providers and the client/community that succeeded with past methods. And, unlike a car, we cannot reject it and sell it for scrap. We also cannot reject delivery of students for being defective, but have to work with what comes in the door; at best we can work with our suppliers through early education and nutrition.

    Differentiation and Response to Intervention are two basic strategies that service providers are now using. They are a start. Along with programs like Head Start and free and reduced lunch schools are providing services clients demand. But, notice that every solution to schools has nothing to do with the student at that moment, but instead with what skills they walk in the door with (including attitude, tenacity and other elusive skills) and what teachers do with where they are. In looking at students as the product (the car) business models such as The Toyota Way, Lean Manufacturing and organization skills like Getting Things Done suddenly speak to the educational crisis in our country.

    I suggest these models are our next step.

    This article seems to be focused on the college level. In that case, the client is even more elusive, but I would argue it is the future student. What goals do they have? In ten years, what do they expect from their investment. A job that pays a certain amount? A career? Or simply to be well rounded? Assume the client is future-student, and present student becomes the product while the school remains the service provider. To this end, a survey of alumni might provide guidance.

Leave a Reply