It's not possible to lower the cost of college by making a direct attack on the problem of soaring tuition rates. Several books over the last decade has made it perfectly clear what not to do:
Gary Hamel and C.K. Prahalad gave us the concepts of core competency and denominator management. Competing for the Future explains how improving the quarterly earnings figures by taking assets off the balance sheet ultimately backfires. An enterprise's ability to innovate and sustain it's value to customers looks bad to those who only monitor the financial metrics. Outsourcing looks like a good idea to accountants, financial analysts and stockholders. Their short sighted interests kill the goose that lays the golden eggs. The core competency gets sold off and leaves an empty shell that cannot increase value for the customers, improve their experiences or pass on cost savings.
W. Chan Kim and Renee Mauborgne advised getting out of red oceans of contested market space where industry rivalries control spending and strategy. Blue Ocean Strategy calls for making the competition irrelevant by creating strategy innovations that serve uncontested market spaces. The existing value propositions cannot provide cost savings to customers because survival depends on advertising, added features and full service offerings that necessitate subsidizing unprofitable components.
Clayton Christensen reiterates those pieces of advice in The Innovator's Prescription while adding several more warnings about flawed approaches to innovative cost reductions:
- Don't expect to arrive at cost reductions by consensus or democratic voting among vested interests in the incumbent enterprise
- Don't leave it to the discretion of people in charge of each profit center to adopt changed business models
- Don't maintain disjointed solution shops where productive value-added processes get burdened with massive shared overhead expenses
- Don't expect customers already being served to identify any jobs not getting done or opportunities to serve nonconsumers
The Obama administration aspires to make college affordable. Yet the Federal government cannot lower the soaring tuition rates or revise the business models that colleges deploy. Legislative initiatives can reduce the cost to individuals by providing funds. This amounts to throwing money at the problem and subsidizing the intransigent institutions. The Obama administration has also intended to "invest in the middle class" to foster the long term health of the domestic and global economies. The middle class can be compared to the core competency of an economy that breeds subsequent innovations. The Obama administration has also launched several initiatives to increase the amount and quality of innovations that get developed in the near term. This may lead to the identification of uncontested market spaces and creative revisions to strategy mixes, business models and value propositions.
It's becoming clear to me how governments can intervene in the cost of college indirectly. The Federal government already provides consumer protection services and advocacy. The safeguarding of consumers from exploitation, abuse and danger -- raises the bar on an industry. Quality standards get set higher by orchestrating what customers expect and demand. New market space gets defined by helping customers see what is missing, unfair, exorbitant and excessive. Providers get put in the position of meeting the new demand or appearing obsolete. I'll further explore how this could play out in the market for college educations tomorrow.