How can Higher Ed manage fundamental changes to their traditional business model?

I was reading this article by Ray Fleming at Microsoft and it got me thinking about the Third Place concept for Higher Ed and in particular, how would an institution investigate the feasibility of establishing or transitioning to a Third Place model.

For those unfamiliar with the Third Place I’ll quote from Ray’s article “The concept of the Third Place is that it’s not home, and it’s not work – it’s a third place that consumers want to go to, as they journey through life, and it’s a distinctively different place delivering a different customer experience.”

Superbly successful for Starbucks, but could it work for Higher Ed?  Ray posits that Australian universities should be the Third Place for the next two decades “To help with the transition of the economy, our careers and our personal lives – and to keep us connected with our changing sense of purpose and support the skills we need for it.”

So what could the Third Place actually look like in a Higher Ed context?  Ray suggests a comfortable drop in space for students to learn, interact with peers, and engage with the people providing education, advice, and coaching alongside an appropriate balance of tutorial and lecture-style learning.

Georgia Tech is already testing this concept, in developing a new model for local learning centres.

People, much smarter than me, can debate the educational benefits of such an approach.  Our experience is to approach these things from a financial perspective – could this actually be financially viable?  Regardless of where an institution would provide their Third Place (current CBD campus or smaller learning centres like Georgia Tech), or how they would provide the learning (using the current model of fee per course, or moving to a Life-Long Learning concept where there might be a smaller fee over a longer period of time, say 10-20 years), the first step is the same – understanding the cost of delivery.

The first thing that needs to happen is to decouple research from teaching.  Even if your institution is thinking of moving to a business model that is completely different to the Third Place concept, the fact remains that you need to isolate the cost (and therefore margin) relating to teaching from the cost of undertaking research.

Then we need to look at the two biggest expenses – people and space.   Using the Third Place concept as an example, we would need to work out who would support short learning sessions through the day / evening, for specific subject instances.  What are their salaries and what else would they do outside of supporting these sessions – teaching regular courses, preparing for teaching, marking exams etc.  This can all be described utilising profiles for that individual or groups of individuals.  How would this profile change from their current traditional role to that of the Third Place environment?

The room, rooms or entire building that would be used to support this initiative would then need to be considered. How much does it cost to maintain that facility, what utilities does it consume, facilities maintenance staff, security staff etc. Utilising a learning space that already exists and has excess capacity would be the most cost effective option, however those spaces may not be in the most suitable location.

On top of people and space, numerous other support and overhead costs would then need to be considered.  This includes HR, Payroll, IT, Library and so on. Would an increase in short course students require an increase in Student services staff?  Would HR staff need to increase to cover a possible increase in teaching and support staff?  Would IT services and support need to increase to support more online content?  And as highlighted in Ray’s article – the coffee factor!  Would the co-located café need to extend its operating hours to provide all the necessary caffeine?

The cost of all of these resources is relatively easy to get, the tricky part is working out how these resources are used to support the actual teaching:

• Does the institution know these costs at the course level?
• Do they know the margins and cross-subsidizations between schools and faculties?
• Do they know the extent of how teaching is actually subsidizing research?
• Can they predict what the financial impact would be in changing student numbers across a number of different courses or programs?
• What about predicting the financial impact of adding/removing new courses and programs?

Once the institution has this type of data, they can then determine the new Third Place business revenue model.  How would they charge for this service?  Would it be a monthly fee or would they charge a pay-as-you-go fee per course?  How much should that fee be to be financially sustainable?

All of this may seem overwhelming but it is exactly this type of analysis that Pilbara models are designed to address.  The predictive model in particular not only supports short-term budgeting and planning but also long-term strategic and ‘what-if’ planning.

For something entirely new like the Third Place model, the most logical and risk averse approach would be to trial a smaller space initially. Collect all of the data for this prototype and then feed that back into the model to explore the financial impact of scaling up the concept.

It is inevitable that new ways of teaching and learning will continue to be developed over time – the Third Place is just one example.  As the adult / part-time student population grows, the competition increases from private sector companies inside and external to traditional Higher Education, and life-long learning becomes more prevalent, then institutions need these types of models to test the financial sustainability of various options before significant investments occur.