Sunday, July 26, 2009

Will This Economic Downturn Spur Innovations?

In screening key resources from the business literature – Business Week, Fortune, Harvard Business Review, Sloan Management Review, McKinsey Quarterly, and others - we have distilled a summary view of how leaders in other industries are responding to lifting out of the current recession.

Jeffrey Immelt, CEO of General Electric, said of the current recession, “This is not a cycle. It’s a reset.” A great many business leaders – perhaps a majority - share his view that new business practices will emerge from this recession in the context of the highly competitive global economy. Many companies have shed workers, slimmed down, and are rethinking their lines of business.

John Seely Brown and John Hagel III have coined the term “The Big Shift” to describe the phenomenon facing industries, today. Quite literally, every industry from financial services to real estate to food and agriculture to manufacturing to health care to information technology – even education – is facing a reshaping of its principles, practices, and products. Shrewd leaders know that knee-jerk cutback reactions can do more harm than good. The risk of not investing during recession is often higher than the risks associated with shrewd investments.

Clayton Christensen, author of The Innovators Prescription, observes that downturns are often good times for innovations. They force innovators not to waste money and to think about what they are doing. Many innovations start out in the wrong direction and need to be realigned. Downturns force enterprises to push innovations out into the marketplace and make rapid adjustments and refinements to produce success.

Downturns also force consumers to be more frugal and cost conscious. In the process, they rethink the basic value propositions they are seeking. Value consists of three basic elements: 1) outcomes, 2) the experiences through which those outcomes are achieved, and 3) cost/price. When consumers reappraise value, all three elements get rethought.

Christensen’s specialty is disruptive innovations – ones that change the dynamics of industries. He observes that disruptive innovations have three elements: 1) a technological enabler, 2) a business model innovation and 3) a new commercial ecosystem. In higher education, the most recent disruptive innovation has been for-profit education, whose providers have used technology to create competence-focused, consistent learning experiences, tailored to the needs of adult learners. For this achievement, learners have been willing to pay a premium price.

The next generation of disruptive innovations in education will follow several courses. First, providers will extend the for-profit business model, but in a way that reduces cost/price. Lamar University has partnered with a for-profit provider to field an on-line, masters in education program for half the price of public university competitors. It now dominates that niche market. This neatly demonstrates the aphorism, “Cash cows are never fatter than the sunny afternoon before the moonless night when they are rustled by new competitors – or old competitors with new tricks.”

Second, Web 2.0 technology will be used to change the patterns and cadences of ongoing learning, introducing a community of practice model to learning and perpetual competence building. Such communities of practice will grow in business enterprises, industries, and communities, often involving a broad range of partners, including colleges and universities. But the dynamics and business models will be very different and these communities will deconstruct learning, competence demonstration, and certification. Much of the learning will be free, using open educational resources.

Many colleges and universities are counter-cyclical, so their enrollments typically grow during business downturns. But the affordability crisis for learners and families is so great that widespread rethinking of value propositions is underway. As learners and their families begin to reconsider outcomes, experiences, and cost, innovations that provide fresh value propositions will receive favorable consideration. Institutional leaders should take note.

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