DISTANCE/ONLINE EDUCATION

BUSINESS MODELS
Industry, Cost, and Emerging Models
2016
COMMON MODELS, MODELS FROM INDUSTRY
Rumbles 1986 Institutional Models
Purpose-Built Model Mixed-Mode Model
Only distance students. Both conventional classroom based
(internal) and distance (external)
Develop own teaching materials for students.
distance teaching needs.
Includes a structure without
True outcome of distance education involving the rest of the university
history-- commercial & and a structure whereby
correspondence schools and departments offer distance courses
colleges. under a central unit
The central unit is administrative
Corporate administration approach only, little or no autonomy, works
closely with faculty or colleges.

Rumble, G. (1986) The planning and management of distance education. London: Croom Helm.
Perry & Rumbles 1987
Organizational Models
Single-Mode Institutions
Either face-to-face education OR distance education
First loyalty to distance education
Expensive thus need to be big to achieve economies of scale
Dual-Mode Institutions
Both on- and off-campus
In theory offer same standards on- and off-campus, but in practice difficult
Consortia
Educational, publishing, broadcasting, and/or other organizations.
A splendid idea which all too seldom works in practice
Business Models and Fiscal Plans for
Online Learning: Access vs. Quality
Institutions typically begin online learning programs for one of two reasons:
1. To extend access to degree programs to new off-campus students
Tend to separate online from general academic by developing continuing
education or separate distance education programs
Often staffed independently of academic colleges

2. To improve the quality of teaching for existing students on campus

Tend to fold into Provosts office or existing academic programs
Cost recovery achieved through normal academic budget

Lorenzo, G. Business models for online education. Journal of Asynchronous Learning Networks
10(2): May 2006. Miller, G. and S. Schiffman. ALN business models and the transformation of
higher education. Journal of Asynchronous Learning Networks 10(2): May 2006.
Quality Model:
Enhanced Academic Program
Most frequently to enhance their current offerings, improve course quality, minimize
duplicate courses, address large classroom sizes, and stem drop-out rates
3 key challenges:
1. How to sustain the cost of online learning within the existing tuition stream
2. How to move from limited innovation to institutional strategy
3. How to organize centralized support services

Lorenzo, G. Business models for online education. Journal of Asynchronous Learning Networks
10(2): May 2006. Miller, G. and S. Schiffman. ALN business models and the transformation of
higher education. Journal of Asynchronous Learning Networks 10(2): May 2006.
Access Model 1:
For-Profit Subsidiary Model
A for-profit subsidiary within a nonprofit institution
Highest risk for long-term success
Many failed due to a lack of sustainability:
Failure to find growth
Failure of the market to materialize

Universities typically will not support with internal investments because not seen as
key to the core mission
Requires significant effort in bridging the for-profit model of the online learning
sector with the non-profit model of the parent institution.
Lorenzo, G. Business models for online education. Journal of Asynchronous Learning Networks
10(2): May 2006. Miller, G. and S. Schiffman. ALN business models and the transformation of
higher education. Journal of Asynchronous Learning Networks 10(2): May 2006.
Access Model 2:
Cost-Recovery Model
Operates in administrative structure of the institution but on a separate budget
Goal of fully recovering costs through new tuition revenue
Financially responsible for paying for faculty time and effort

Separation from institutions main educational offerings may lead to difficulty in

enrolling mainstream students
May even have separate enrollment

Lorenzo, G. Business models for online education. Journal of Asynchronous Learning Networks
10(2): May 2006. Miller, G. and S. Schiffman. ALN business models and the transformation of
higher education. Journal of Asynchronous Learning Networks 10(2): May 2006.
Consortia Models
Share costs and share risk Fast to market, fast to cope with new demands
Share courses, resources and Operate credit transfer/recognition of prior
academic and commercial learning systems
experience and expertise;
Capitalize on partners local knowledge and
Achieve a competitive edge and reputations
greater market share
Outsource and share services such as
Form alliances with potential marketing, counselling, admissions,
competitors and disruptors registration, and proctoring
Attract funding De-bundle learning materials, tutorial support
and course assessment
Go international
Create a franchise arrangements
Traditional University Business Model
and Structure
The organizational structure is similar to that of hospitals and accounting
firms: decentralized, with most decisions are made by the operating core of
professionals who do the primary work that provides value to customers (Mintzberg,
1981). They are highly trained and indoctrinated into a common culture, and much of the
work is standardized into routines that are well-practiced but vary according to functional
specialty such as Law, Business or Medicine (Shulman, 2005). Little is formalized or
documented.
In strongly decentralized universities, programs and courses are added based on faculty
preference, whether individually or by committees; student demand may or may not be
considered. Faculty are organized into departments and schools based on fields of
study, which gain power and prestige with more staff, programs and degree offerings as
well as more research; therefore there are incentives to add all of these. Similarly, each
course is designed independently and generally idiosyncratically, with few standards or
rules
Proprietary University Business Model
and Structure
For-profit universities and colleges focus on providing the first two value propositions: developing
skills efficiently and obtaining a degree for career mobility. This is particularly true for those using
online learning, and the narrow focus allows very tight standardization of procedures and a mass-
production design, which increases efficiency. The business model is value-added (Christensen et
al., 2011), and the organization is highly specialized, with work broken up into discrete units that
can be done consistently and routinely. Decision-making is centralized at the top and decisions are
implemented through middle-management.

Programs and courses are selected by administrators to meet market demand. Courses are then
designed to fit a common structure, with consistent appearance and naming conventions. This
provides not only a consistent visual brand, but also simplifies the process of taking each course;
once the structure has been learned, students do not waste time figuring out where to find things.

These practices mean that many key decisions are centralized, and much of the work is both
standardized and formalized.
Industrialization of Higher Ed:
Fordism, Neo-Fordism, Post-Fordism
Bureaucratization
Massification
Large-scale hierarchies
Large-scale mass production
Increased administrative
Highly rationalized form of
control, disempowerment
education involving
and deskilling of academic
mechanization,
staff
standardization, the use of
capital-intensive technologies,
centralized planning and
control, division of labor, Low levels of product variety and innovation
reduction in the autonomy of Pressures for efficiency
the academic producers, and Machine-graded assessments
Calculability in all areas
an objectification of the
Predictability
production process Elimination of subjective judgement of professors
COSTS, FINANCIAL STABILITY
Texas A & M Study: Confronting Price
and Costing Issues
The devils in the details when determining costs and prices for distance delivery of
courses
Cost versus Price
From a financial perspective, public universities face at least two major
dilemmas: 1. providing financial support for faculty and teaching units
preparing courses for distance delivery, and 2. determining pricing strategies
that must follow state-mandated guidelines while remaining cost-effective to
university budgets, which are always under stress.
From an institutional and regulatory perspective, 1. distance programs meet
state, university, and TAMU System guidelines; and 2. prices are both
affordable and appropriate to the student market and cost-effective to the
university, which faces development and delivery costs.
TAMU: Steps in the Process

Step 1: Cost per Semester Credit Hour (SCH)

Ideally, how much a university charges for its courses should depend on the cost to
develop and deliver the course or even a complete degree program.
However, this calculation is complicated by the fact that infrastructure, faculty, and
support staff are already in place. An institution must decide if it will charge total cost or
marginal cost incurred for these distance students.
Masters Teaching Salaries + Prorated Masters Departmental Operating Expense +
Prorated Masters Deans Office Operating Expense = Masters Cost (Total) Number of
Masters SCHs Taught = Cost per SCH
Discovered that the average cost for all masters courses at our institution was similar to
the charges for out-of-state tuition; that is, the out-of-state tuition rate will cover the cost
of delivery.
Step 2: Administrative Cost

1. Determined which units on campus provide administrative support to DE students

registration, fee assessment and collection services, financial aid, distance education,
and so on.
2. Took TAMUs total budget for each office and divided that number by the total
number of SCHs taught at TAMU in the current academic year.
3. Determined that dollar amount for each SCH taught, which gave us the cost per SCH
for allocation to each office.
Adding yielded the administrative cost per SCH for the current year $24.93.
Step 3: Determining Price for Non-State-
Funded Distance Courses
With the two costs identified in Steps 1 and 2, next included fees charged for a DE
course as well as traditionally charged fees.
Fees charged in addition to tuition cover the cost of specific services to students.
Texas Higher Education Coordinating Board requires that DE students have services
comparable to those offered residential students. Thus, fees defray costs of services
to distance students.
Step 4: Other DE Cost
Replacement Amount for State Also figured:
Funding. The $335 per SCH figure Facility Costs at Other Sties
the out-of-state graduate student rate
doesnt replace what TAMU would Special Supplies
receive for tuition and state funding if Books and Course Materials
we could submit the program for one stop shopping
formula funding. However, used as a
foundation price for a DE course Phone costs
because (1) it is an accepted tuition Special Equipment
rate and (2) other cost areas are
listed that help reflect true
expenditures.
90 percent of this amount be
returned to the college hosting the
course to financially support DE
conversion efforts
Step 5: Fee Distribution

90 percent of the teaching fee and 50 percent of the DE fee are returned to the
college teaching the course.
10 percent of the teaching fee is returned to TAMU for infrastructure support.
Financial Sustainability:
10 Principles
Principle #1: Know Your Market
Feasibility; Encompasses knowledge of several markets, including :
The job market: What are graduates of the program qualified to do? What skills are growing in
importance in the job market?
The student market: How many target students are there? What kinds of programs are they
interested in? Where are these students located? What skills do they have?
The market competition: Which institutions offer similar programs? How are these programs
delivered? What do they cost? What is their enrollment like? How much time is required to
complete these programs?
The markets within your institution: How does your program fit in with others offered by your
institution? Does it compete with other internal programs?
Your competitive advantage: How loyal are your students? Are there new competitors in your
field? How do students base their decisions? Price? Focus? Delivery? Format?
Meyer, Katrina, Janis Bruwelheide, and Russell Poulin. Developing Knowledge Through Practical Experience: The Principles of Financial
Sustainability for Online Programs. Online Journal of Distance Learning Administration. Vol. 10. No. 2. Summer 2007.
www.westga.edu/~distance/ojdla/summer102/meyer102.htm
Principle #2: Know Your Costs Principle #3: Determine A Price
Process for identifying and Price setting requires detailed
estimating costs of instruction, knowledge about available state
academic support, and student subsidies, grants, and students
services ability to pay
Improve efficiencies through Key questions:
scalability, technology, and labor What levels of enrollment are
changes needed?
To what extent other revenue
sources are required?
Use Alternative Fee Structures
Example Institutional Policy:
University of Wisconsin System
https://www.wisconsin.edu/program-
planning/acis/pricing-policies/distance-
education/
Principle #4: Negotiate Principle #6: Develop and Implement Marketing
Institutional agreements should Essential to target audience, based on known
cover program revenue, the percent market demands.
of royalty payments, indirect cost
Routes can include professional associations,
recovery, and distribution of
employers, and agencies
revenue to faculty, the program, the
departments, and others.

Principle #5: Observe Financial Principle #7: Web Identity

Management Rules
Online presence constitutes public
Budgets must be established and representation and should provide extensive
monitored according to good information
accounting principles.
 Principle #9: Improve Retention
Principle #8: Identify and Develop Good
Faculty, including Adjuncts Implement useful screening
methods and admissions criteria
Need to deliver quality, which is
heavily dependent on faculty. Provide orientation programs
Faculty should be interested, Interaction
engaged, and ideally co-designers
Design high quality

Principle #10: Continuously Improve

Continuous assessment of
outcomes a priority
Determining Business Model
The interplay of mission, market, and margin
provides a quick evaluation framework :
Mission: What are we good at?
Market: What do people want?
Margin: How do we bring these together
in a way that is true to our mission and
generates resources?
 Basic Business Model Canvas
Who do you
serve? Who
attends?

Why do
students
attend?

What are our

fundamental
activities?
Online Competency-Based Education as
Business Model Innovation
Core Curriculum Organization:
Capella University
Core Curriculum Organization:
Southern new Hampshire University
Example Student Dashboard: