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New Models in the Making

July/August 2017

By Robert Brodnick and Donald Norris

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Applying a business model innovation tool to strengthen enrollment and stability, two higher education institutions are reaching out to external partners to explore new products, services, and markets.


“We usually associate an industry’s transformation with the adoption of a new technology,” write Stelios Kavadias, Kostas Ladas, and Christoph Loch, in the Harvard Business Review article “The Transformative Business Model” (October 2016). “But,” they go on to say, “although new technologies are often major factors, they have never transformed an industry on their own. What achieves such a transformation is a business model that can link a technology to an emerging market need.”

Higher education has no shortage of emerging needs—and growing numbers of institutions are finding that innovative business models can provide solutions. In the view of many educational and political leaders, not to mention the public and the media, the current financial model for higher education is broken. Higher education institutions need to innovate their strategies, program offerings, and business models, if they are to meet emerging value expectations and achieve financial sustainability.

Yet, institutions are timid at best in their approaches to business model innovation. Many do not articulate their existing business models well, nor can they describe them to constituents in simple ways. They lack effective tools and experience in making significant leaps in business model design and delivery.

Fortunately, NACUBO’s Economic Models Project, launched in 2014, was designed to help its members navigate the changing dynamics of current higher education economic models. The project’s goals are to illustrate the current state of economic models in higher education, set a vision for what future economic models might look like, and produce guidance on how to engage in the structural and cultural change needed to achieve business model reinvention.

This article supports the goals of the Economic Models Project, providing additional proven tools and approaches for business model innovation and grounding them in successful application supporting long-term strategies at large and small institutions—UCLA Extension, Los Angeles, and Ocean County College, Toms River, N.J.

These cases illustrate the importance of aggressive executive leadership, guided by a working understanding that current business models, alone, will not yield future financial sustainability for most institutions. Moreover, they illustrate that substantial new revenue streams will require genuine reinvention in business models. The most transformative of these business model innovations leverage technology to meet new and emerging value propositions. The article concludes with some thoughts about how business model innovation and execution can be linked to institutional processes of strategic planning and change management.

Business innovation generally includes three components: (1) creating something new or using something in a novel way, (2) putting the idea into practice, and (3) generating value through the implementation. Combining these ideas, business model innovation in higher education entails generating new business models and taking action to implement them in such a way that value is created for the institution, constituents, stakeholders, customers, society, and other interested parties.

In our consulting practice, we are using a tool called the Business Model Canvas (BMC) developed by Alex Osterwalder and Yves Pigneur, along with a host of collaborators—and described in detail in Business Model Generation (John Wiley and Sons, 2010). Composed of nine building blocks, the central element of the Business Model Canvas is the value proposition, which articulates the value delivered to a customer and is the reason that customers choose one organization over its competitors.

If you picture an oblong canvas with the value proposition block placed in the center, additional blocks along the left side of the canvas focus on cost and efficiency and highlight the following variables: partners, resources, activities, and costs.

The elements on the right side focus on revenue and value generation, with blocks identifying customers, relationships, channels, and revenue.

Through a close examination and discussion of all these different components of an institution’s business model, new ideas often emerge that can become pathways to revised, improved, or wholly innovative models for a successful future.

Applying the Model

The Business Model Canvas can be used in four distinct ways.

Depict. Graphic representations can help reveal all the existing business models at work in an organization. Even though activities are sometimes not viewed as business model components, if they are creating value in exchange for goods or services, the underlying mechanisms of a business model are at play. And understanding all those inner workings can provide great insight about your institution’s value proposition and the other building blocks.

Evaluate. Rigorously evaluating each model and/or its components—with a look at how they work and interact—can be essential for enhancing or optimizing business models that originated and developed organically.

Evolve. The canvas offers a process of changing and revising a business model when it no longer works or reaches limits in its effectiveness.

Innovate through design. Using design principles such as customer insights, ideation, visual thinking, prototyping, storytelling, and scenarios can provide a basis for developing a wholly new business model.

Most enterprises can use the canvas to actively combine these four activities to expand and improve the effectiveness of their portfolio of business models and the value propositions that they support and deliver.

Business Model Innovation in Action

The canvas is a relatively new tool for educators, and we have seldom seen it used for existing or future business models in higher education. However, its recent application at UCLA Extension, Los Angeles—which supports one of the nation’s largest and most comprehensive continuing education programs—demonstrates how effective the tool can be. The extension serves more than 60,000 learners in more than 100 certificate programs, in 20 fields.

UCLA Extension has a pre-eminent position in the LA Basin, with extensive networks of advisory committees, corporate partners, and alumni. It also has forged partnerships and relationships internationally to leverage its LA-based brand. In 2016, Provost Scott Waugh designated UCLA Extension as the campus focal point for launching UCLA Global, through which online offerings, both credit and not-for-credit, will be made available online to a global audience. These will include offerings from UCLA Extension, other academic units of UCLA, and joint ventures from other providers.

While many view modifying continuing education programs to be quite different from transforming traditional higher education credit programs, the process of forming external collaborations applies in a similar fashion to both education models.

Brainstorming something better. From December 2016 through February 2017, UCLA Extension engaged in two new interconnected, activities, facilitated by Strategic Initiatives: (1) action planning for UCLA Global, using business model innovation to explore new programs, products, services, and markets; and (2) design thinking workshops that featured business model innovation involving key leadership from UCLA Extension and IBM to explore partnerships that would enable them to serve the workforce knowledge ecosystem in the LA Basin and globally. These efforts were built on a multiyear program of strategic planning, execution, and capacity building, and were launched by Wayne Smutz when he assumed the role of dean, continuing education and extension, in 2013.

Both the 2016 and 2017 efforts involved use of business model innovation to address unmet and emerging needs for learners, employers, and society. The UCLA/IBM workshops in particular offer a clear application of the tools of business model innovation in action.

“Strategic Initiatives leaders came to our dean and introduced the opportunity for us to work with IBM,” says Radhika Seshan, associate dean and chief operating officer at UCLA Extension. “We were interested, and their team coordinated the conversations among six of us from UCLA and four people from IBM, in which we discovered mutual needs and ways we could participate together to benefit both organizations.”

Step by step. The facilitated process combined design thinking and business model innovation in four key stages.

The group eventually narrowed its business model opportunities to three: IT Training, Co-Branded Badges, and Watson Learning Assistant. For instance, Watson, IBM’s question-answering artificial intelligence system that responds to questions with human-like AI, has been successful in helping health-care professionals make informed decisions about patient care. “We wondered if we could leverage the power of Watson to add artificial intelligence to answer our students’ questions,” Seshan says. “Could we leverage self-learning intelligence to enhance the student experience and our business intelligence?”

Although the group focused on three priorities, none of the collaborative opportunities were completely eliminated, and elements of some of them were later incorporated into the emerging initiatives that UCLA Extension and IBM are currently pursuing.

Results in Action

While the results of these activities are still playing out, they have greatly accelerated both the UCLA/IBM partnerships and the advancement of UCLA Global. For instance, immediately following the workshop experience, the top collaborative opportunities were embedded into UCLA Global’s action plans. UCLA Extension proposed five co-branded badges in IT Training that were accepted by IBM, to be developed using IBM content, and to become the first part of the co-branded IT Training program to be pursued by both institutions.

“This fall, we will launch IBM’s cybersecurity training in our online platform, and together, UCLA Global and IBM will market it to the world as a continuing education opportunity,” Seshan says.

As the need for more technology-enabled professionals grows across the world, it’s crucial to create a well-rounded workforce that is able to balance technical, professional, and “soft” skills. Since a majority of UCLA Extension students are professional learners who may be preparing for a new career or for further success in their chosen careers, the ability to offer badging as “micro credentials” is an important value-add for students and employers.

Working with IBM, UCLA Extension could play an important role in connecting professional skills and employer expectations through badging. Gathering insight from IBM as a provider of services across multiple industries can bring early credibility to new badging initiatives.

In addition, the two organizations are currently exploring the possibility of embedding IT Watson in the UCLA Extension’s newly reinvented technology stack. “We are meeting to determine how IBM Watson can become a key part in scaling up UCLA Global and making its scaled offerings available globally at an affordable price,” Seshan says.

One potential use for Watson is to create distinctive student experiences, where a “virtual assistant” can deliver mass customization and support for students. Another is to integrate Watson to help deliver business intelligence and personalized marketing by implementing Watson analytics on UCLA Extension’s technology and education platforms.

The intense workshop experience rapidly built a strong sense of teamwork between UCLA and IBM participants. “I liked that the process started off asking the big questions, allowing our thought processes to converge and for the conversation to move forward in a way that was not taking sides,” Seshan says. “Usually, companies come in with a sense of specific intentions and an awareness of what is their own turf, but this was different because the only intention was to be completely open to new ideas. And the framework allowed us to capture those ideas and make them actionable.”

The unique blend of IBM’s global footprint, combined with UCLA’s globally visible brand, offers remarkable implications: As traditional educational institutions strive to evolve into a market-facing, value-driven industry, companies such as IBM that have transformed themselves to stay relevant and increase value can play an important role in sharing their experience through joint business models and channels.

Through the cooperative planning process with IBM, leaders at UCLA Global realized the importance of reinventing UCLA’s existing business models to create new value propositions for the international marketplace. The process also showcased the importance of leveraging technologies, like IBM Watson, that have the potential to fulfill unmet and emerging needs for workforce-focused learning in transformative ways.

An Urgent Need

Some innovations in higher education have been scaled to enterprisewide application and have strategically changed the institution. However, most innovations in higher education institutions have been incremental, fragmented, and nonstrategic.

Many have been academic innovations that did not pay attention to the business model in which they were embedded. Most have been “sustaining” innovations that simply layer new technologies and piecemeal improvements on top of existing practices and business models, failing to decisively address new needs and value propositions. Moreover, many of such sustaining innovations have increased costs and failed to produce fresh value propositions.

To meet today’s rapidly changing educational needs and achieve financial sustainability, colleges and universities will need to innovate and transform many of their institutions’ core processes and practices—and the business models in which they are embedded. By doing so, institutions will be able to fulfill emerging value propositions that require affordable access, personalization, competence building, and the seamless linkage of learning, competence, employability, and jobs. Fulfilling these emerging needs will be key to creating new revenue streams and assuring both future financial sustainability and excellence and value for higher education’s many stakeholders.

Institutions that have not utilized business model–based thinking into their program and strategic planning process will need to proceed in a manner that both acquires experience in deploying business model innovation tools and develops their institution’s organizational capacity in business model innovation.

Business officers use business model innovation to evaluate and compare existing and new programs, investigate new revenue streams, explore new modes of learning, and test the transformative potential of new and reinvented business models. They can also link business model innovation to strategic planning as a way of “unsticking” institutional thinking, provoking leaders to rethink their overall vision and strategies for the institution.

Just as business model innovation has been effective for UCLA Extension in addressing its strategic opportunities, it can be helpful for business officers at other institutions for reinventing and deploying new, innovative ways of working to achieve competitive advantage and financial sustainability. Business Model Canvases are useful tools for shaping thought processes, building organizational capacity, and guiding execution of changes in institutional business models.

DONALD NORRIS is president and ROBERT BRODNICK is a principal at Strategic Initiatives Inc., Herndon, Va.

Related Topics

Using design principles such as customer insights, ideation, visual thinking, prototyping, storytelling, and scenarios can provide a basis for developing a wholly new business model.