College Disrupted: The Great Unbundling of Higher Education by Ryan Craig (review)

Higher education is being dramatically changed (“disrupted”) by market forces in ways that will (and should) fundamentally alter the services that colleges deliver and the programs that prospective students pursue. Ultimately, the value of higher education to students and to society will grow. More immediately, however, this disruption will appear as a great “unbundling” of individual colleges and universities and of the higher education sector as a whole—“unbundling,” per the author, suggests a blend of vertical disintermediation, specialization, outsourcing, and unraveling or failing. “In microeconomic terms, bundling captures surplus for producers. Unbundling moves much of that producer surplus to consumers and may create new consumer surplus. For higher education, unbundling would drastically reduce revenue per student. As a result, the cost structure of colleges and universities would need to downshift dramatically” (p. 101).

Neither a gloom and doom screed of higher education’s pathologies, nor an unconditional sales pitch of “solutions,” Ryan Craig critiques higher education through multiple lenses of student, economist, investor, and educator—appraising both the warts and the beauty marks of colleges and universities and their potential to survive, even thrive, in higher education’s marketplace. He draws on his extensive education-related experience as student (Yale), investment analyst and advisor (Warburg Pincus, University Ventures), entrepreneur, and senior executive (Wellspring Camps) to create a compelling story of higher education’s future based on his views of its past and present.

Despite enormous variety among 6000 higher education institutions—a hallmark of “the greatest higher education system in the world”—U.S. colleges and universities herd together, each seeking to emulate the small number of elite institutions at the top of the prestige pecking order—a goal impossible to achieve for most. Pervasive, almost unconscious, isomorphism fosters little more than unproductive conformity, stifling innovations that depart from norms of the elites and resulting in higher education not fully functioning as the robust sector of our society that it could—and should.

Isomorphism manifests itself in four broad dimensions (“the four ‘R’s”): rankings that focus on inputs and not outputs; rewards based on research production, much of which is never cited; real estate development which bears little relationship to formal education; and sports programs (“Rah”). The net result is overly expensive for most students, serving a few well, but others not at all, and for too many, not up to their, or society’s, expectations. Increasingly, the numbers just don’t work for someone thinking about “investing” in higher education. “The average US student spends $48K on tuition, but incurs an opportunity cost of $54K by going to school and not working full time” (p. 42).

Drilling down into the bundle, disaggregating the four R’s, Craig finds a pervasive array of problematic finance and governance practices that stifle adaptation to emerging new realities. Financially-related problems are manifest, ranging from pricing strategies, to compensation policies, to cost management, to misallocated scarce resources. But, fundamentally, higher education’s problems trace back to institutional governance. Higher education governing boards, both public and private non-profit, are creatures and servants of senior management. They are beholden to presidents who, in turn, are largely themselves products of the traditional, norm-driven, rankings-related prestige system. Vague, multiple missions of “excellence” provide no agreed-upon frameworks for board members to evaluate institutional performance by senior management, especially performance associated with student-related outcomes, cost-effectiveness of programmatic offerings, and strategic direction. The crisis of college affordability is but one of the manifestations of perverse incentives associated with institutional governance at most institutions.

This does not mean that higher education is a doomed industry by any stretch of the imagination: demand for post-secondary learning continues to outpace supply far into the foreseeable future. If, however, individual colleges (other than the elite few) don’t start to pay more attention to the value proposition of what students get when they pay, they will eventually be “disrupted...