Why Technology Hasn't Lowered Costs or Improved Quality in Education

Below is an article that was published in the Spring of '06 that I wrote for Threshold magazine, a publication of Cable in The Classroom. I am on their Advisory Board. In short, in every other industry, technological innovation is an effort to increase productivity. Productivity is greater output with the same input of labor or the same output with less input of labor. No matter the case, productivity is dependent upon integrating technology with labor -- something that education at every level has willfully ignored.

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OUTSIDE HELP: IMPROVING PRODUCTIVITY IN SCHOOLS

After capital expenditures, instructional labor is education’s biggest expense. Yet, despite the enormous potential of technology for improving the quality and quantity of instruction, and the enormous pressures on schools to reduce spending, little has been accomplished to enable greater teaching productivity. Put simply, to improve productivity, either more or better instruction must be provided to the same students or more students must be taught with the same resources.

Schools that expect technology investments to drive quality improvements and cost reductions would do better by focusing on products and services that answer questions such as:

* How do we free up more time for our most skilled teachers to perform the most complex instructional activities?

* What parts of the educational process are best done by computers instead of people?

* Are there parts of the educational process that could be performed more cheaply by others?

* What services does my school provide that cannot be done better or more cheaply by someone else?

The answers to these questions are neither simple nor easy, and they threaten traditional notions of appropriate student:teacher ratios, quality control, classroom design, funding formulas, salary structures, and job responsibilities. However, every successful technology innovation in the history of humankind has enabled people to do more with less. Education should be no exception.

PRODUCTIVE APPROACHES
Though these questions may be thorny and difficult, the traditional 20:1 student:lecturer model is giving way to more productive ways of offering instruction. While most examples are in higher education, they do offer models for K–12 education as well. Schools are combining their own instructors with other instructional services to create programs that are cheaper, more effective, and more scalable. For instance:

To free up professor time for course management, course design, and student intervention, the Kentucky Community and Technical College System (KCTCS) contracted with a commercial company to grade student essays within 24 hours and adopted a textbook that included an essay-review service. The benefits? For the students, they receive suggested grades within 24 hours, have a third-party review, and the graders have more consistent training and provide more consistent assessment than could be provided in a traditional structure. For KCTCS, one instructor can teach more students, the per-student cost is lower, and some of the cost of providing the service is borne by the textbook provider.

After deciding to offer a program focused on math and writing for underprepared students, Kaplan University partnered with an online tutoring company to provide the assessment, content delivery, and tutoring components. The students receive tutoring access up to 24 hours a day, seven days a week. The school is able to shorten the development time of a program, reduce its risk and development costs, and rely on the expertise of a partner company for specific instructional activities such as online tutoring.

The National Center for Academic Transformation (NCAT) has worked with more than 50 colleges to redesign high-enrollment courses. NCAT results demonstrate that, by rethinking instructional labor strategies, schools can increase student success and decrease per-student costs. When schools make greater use of digital content and courseware and rethink student: teacher ratios, staffing patterns, and faculty roles, students need less intervention from live instructors, and more of what they do need can be provided by tutors, teaching assistants, or course coordinators.

The Baltimore City School System is one of many public school systems nationwide to hire teachers overseas to affordably meet the “highly qualified teacher” requirement
of the No Child Left Behind Act (NCLB). The system hired as many as 50 Filipino teachers to teach in the city’s schools. Additionally, many online Supplemental Education Service (SES) providers under NCLB use tutors located overseas. Whether in person or online, tapping the global market for educational labor allows more flexible staffing, and either lower-cost or more-qualified staffing.

WHY NOT?
Opponents might argue that the intimate teacher/student relationship is lost if grading is outsourced. However, the reality is that the intimate teacher/student relationship is an ideal that is far less common than we would hope and is far more expensive than we would admit. Initial results from most of the NCAT’s projects and from the Kentucky grading project show that student performance actually improved, while per-student costs decreased. Another argument against such models is that outsourced instructors will have different teaching techniques and standards than those taught at a particular school. While there certainly are some teaching functions that are best not outsourced—particularly those that require
a high degree of socialization, such as most teaching of elementary students—there are many functions that can be easily outsourced. For instance, math, science, and writing fundamentals are essentially the same across schools, states, and countries. Most schools are already comfortable with outsourcing at least some elements of education—many schools that offer distance-learning courses do so through third-party providers, and textbooks and courseware are the result of outsourcing content development and delivery.

Every year, the cost of education outpaces inflation with no increase in overall student performance. In "The World Is Flat," the best-selling book that attempts to define trends and technologies in the global marketplace, Thomas Friedman describes how companies in almost every industry are “insourcing” their logistics—letting partner companies manage the tracking and delivery of their products and services—and outsourcing elements of their production process. These trends are increasingly part of education as well.

No matter how it’s defined, education, like other hidebound industries before it, is about to become part of a global market. In other industries, this has resulted in products and services that are cheaper and of higher quality. Viewed one way, this threatens the cost and service structure of American education. Viewed another, this is an opportunity to rethink the components and functions of a school and all of the political, economic, and accountability structures that surround it. If doing so can improve productivity in schools, more students will ultimately receive more opportunities to learn, achieve, and succeed.

P = MC and the Implications for Textbook Publishing and Colleges

Since the advent of the Internet, many prognosticators (myself included) have predicted dramatic transformation in the education industry and the textbook publishing industry. Unfortunately, when I go to a conference today, I hear rehases of the same keynotes as I heard a decade ago. Fortunately, there is some evidence that these transformations are finally happening in both education and textbook publishing.

The decade long belief in transformational change stems from a central tenet of microeconomics. It is that, in a perfect market, the price of a good is equal to the marginal cost of production and distribution of that good. The Internet renders the marginal cost of production and distribution of educational content to almost zero. For example, it costs almost nothing to produce and distribute one more copy of a digital algebra textbook. In theory, a competitive market would push the price down to almost zero. This has dramatic implications for the textbook industry and for educational institutions.

However, neither education nor the textbook publishing are perfect markets. As I noted in another post, the market for higher education is rife with trade barriers. The market for textbooks suffers from a mismatch of the person who makes the buying decision (the professor) and the person who pays for the book (the student). This means that the professor has no incentive to search for low-cost options. Further, the school also frequently receives a portion of a book-store's revenue, further reducing the incentive to reduce costly middlemen. Here is a comment that I wrote about an article about high textbook prices in a higher education trade magazine:

"Textbook prices would come down dramatically if:

1) Colleges made institution wide textbook decisions and bundled the cost of those books with the price of college, instead of letting each professor make their own textbook decisions.

2) Colleges didn’t look to their bookstores as revenue centers.
It is no wonder that textbook prices soar when the professor makes the buying decision, but the student buys the book. If the cost of a new textbook mattered to an instituiton, like it would if it had to be factored into tuition, the school would have an incentive to make better decisions and to shop based on price. Right now, there is no incentive for professors to do this. In fact, many of the largest for-profit schools have done this and they have driven textbook prices way down for their students.

Also, publishers would be thrilled to sell books directly from their websites and cut-out the middleman — the book stores. However, most colleges look to their bookstores as revenue centers. The college gets a piece of the profit. Therefore, the college frequently is the middle-man, again, with no incentive to cut prices."

So what's the good news? Publishers are aware that their existing textbook economic model is not sustainable. The growth of for-profit schools and the extension of the practice making institution buying decisions, the growth of free-content initiatives, and the growth of ad-supported textbooks are all portents of a different economic model. Increasingly, publishers are trying to figure out how to become service providers instead of content providers. Recently, SMARTHINKING announced partnerships with 3 of the 4 largest higher ed textbook publishers. Tutoring services, combined with an increased reliance on instructional administrative systems, are the sorts of products publishers will be selling in the future. These will be sold as subscriptions rather than as things (like books). In short, today students pay for content and get a lot of ancillary materials and services. Tomorrow, students or schools will pay for the ancillary materials and services and the content will be free. Educational institutions are confronted with the same challenge. Does it really matter where someone learns college algebra? What is the value that an individual school brings to education? A question for another posting…

Higher Education Free Trade Agreement (HEFTA)?

Distance education removes the geographic barriers to educational choice. Once removed, those courses that are the same across schools --typically those taken in the last two years of high school and the first two years of college -- become commodities. As a commodity, standard economic theories can be applied to their pricing and consumption (or lack thereof). When you look at the higher education market through the lens of international trade theory, one can see ways in which the cost of high school and college can be dramatically reduced. One can also see why such changes are slow to happen.

Here's an excerpt from my master's thesis that I wrote in 1997, which, astoundingly and unfortunately, is still relevant today:

"The problems of integrating institutional course offerings is similar to the evolution of international trade and the creation of a global, integrated economy. In the international arena, each country could be said to produce roughly two classes of goods, those that they produce exclusively and those in which they compete. For instance, the climate of Mexico allows the growth and export of oranges and the cold waters of Finland provide cod fishing unavailable in Mexico. Clearly the orange and cod trade between both governments will help the other. However, both America and Japan compete to produce automobiles. Although Japan might produce better and cheaper automobiles, and the American consumer would prefer to purchase a better and cheaper automobile, political pressures conspire to prevent such purchases. Because “competitive” products are common to both countries, they are likely to affect more consumers, therefore, the benefits gained by sharing these products are likely to be larger than the benefits gained by sharing “exclusive” goods. As countries increase their trade, their economies become more integrated.

In distance learning, the colleges can be considered countries and their course offerings can be considered to be “exclusive” and “competitive” goods. Finally, as national economies or institutional curricula become even more integrated, industry specific government subsidies and regulatory barriers in international trade and state subsidies to specific institutions in distance education could affect the competitive balance."

To extend the analogy, two schools will be willing to import and export their low-enrollment, highly specialized courses (say, Mandarin Chinese and bio-mechanical engineering) because importing these does not threaten their existing courses. However, they are much less willing to import college algebra, english composition and chemistry 101, because these courses will threaten a school's existing math, writing, and chemistry faculty. To put it more bluntly, why won't a 4 year college which charge $1000 per course simply outsources its english 101 course to a community college which charge $250 per course? While consumers benefit from the first scenario, they REALLY benefit from the 2nd.

Though much of higher education has become a commodity in the last decade and the number of educational providers has grown substantially, the established educational players have little interest in "opening their borders" to credits granted at other colleges. Like taxation, subsidization and regulatory barriers in international trade, schools have a number of tools and policies at their disposal to keep their borders closed. For instance, individual schools set articulation policies and graduation requirements. Groups of like-minded schools set accreditation requirements which have important financial implications. State and federal governments provide price subsidies that affect the market for courses. Lastly, the byzantine labrynth of articulation policies, graduation requirements, accrediting agencies, and financial aid information limits the transparency of the process. Even if credits are officially transferrable, if it is difficult to find that out, students will be discouraged from trying in the first place.

* Articulation policies: Each school sets its own policies about the courses from other schools that it will count as credit. For instance, even when a public institution and a for-profit institution are accredited by the same body, public institutions (importer) are reluctant to accept credits from for-profit colleges (exporter), where for-profit colleges (importer) are very likely to accept credits from public colleges (exporter). A similar dynamic exists among 4 year and 2 year institutions. These are similar to regulatory policies that might be enacted at a national level. For instance, a government may decide that only products from countries with certain environmental or labor laws are allowed to be imported.

* Graduation Requirements: Even if a school does import another school's credits, other regulatory barriers are likely. For instance, an importing school might count a student's course as credit, but not credit toward graduation, or not credit in a specific discipline necessary for graduation. Though not monetary, this is, effectively, a tax. A student may import the course as credit, but may have to pay for this course again or pay for a different course when it's unnecessary to meet graduation or distribution requirements.

* Accreditation: The regional accrediting agencies are funded by their member institutions. The agencies' purpose is to help institutions improve. However, because this is a quality assurance body created by the members that it oversees, its ability to impose dramatic change, impose requirements contrary to its members vested interest, and to respond to external forces is dramatically limited. By linking regional accreditation to a student's ability to receive federal financial aid, regional accrediting agencies are the de-facto quality assurance bodies for higher education. This is similar to the multi-national groups that govern economic policy. For instance, an accrediting body could be compared to the OECD, European Union, or World Bank donor countries.

* Price Subsidies: Higher educatoin is one of the few industries where for-profits, non-profits, and publicly subsidized non-profits offer the same product at radically different prices. All states subsidize their public higher education systems to greater or less degrees. These subsidies, in turn, affect tuition. With tuition artifically lowered, it is difficult for cost-effective solutions to enter the marketplace. The United States continually complains about how EU countries subsidize AirBus in its competition with Boeing in the sale of aircraft.

* Information Asymmetry: This means that the school knows its articulation policies and graduation requirements, but it is extremely difficult for the student to find it out. It is even more difficult to find it out for many schools that the student might be considering. Without having the appropriate information, the student is discouraged from piecing together a lower-cost educational path.

In every other industry, new technologies increase productivity which drives costs down, improves quality, or both. Usually, it is the free market which forces these productivity improvements. Companies that use new technology effectively, frequently start-ups, force established companies to comply, thereby improving the productivity of the entire market. In education, though the technologies exist to dramatically reduce costs and improve quality, the market dynamics do not.

However, I believe that market realities are creating serious cracks in the regulatory structure that protects existing colleges. First, the cost of college continues to rise faster than the rate of inflation and students are seeking ways to piece together an affordable college education. Even the cost of publicly subsidized education has risen to the point that low-cost, high quality, unsubsidized course offerings can enter the market place. Second, students are increasingly turning to distance education for convenience, if not price. This creates a competitive market for distance education classes. As schools compete for students, they are increasingly willing to accept another school's credits in order to attract a new student. Third, as schools are increasingly willing to accept another school's credits, schools are being forced to examine and open up their articulation policies. Public institutions are increasingly enacting articulation agreements among themselves or are being forced to do so by the state government. Fourth, as a result of greater articulation agreements and the searching power of the Internet, credit transfer policies are becoming increasingly transparent. Fifth, the federal government is beginning to take a much harder look at the role of accreditors. Ultimately, the federal government needs to decide if an accrediting body is a self-improvement club or a quality assurance entity. If the former, the financial aid shouldn't be tied to it. If the latter, schools should have a more limited voice in the standards that it sets.

It is a shame that the Internet has not driven the cost of education down. However, today, in higher education, one can see the first cracks in a market that has been protected for a century. If I'm lucky, higher education will be cheaper for my kids than it was for me.

The Online Tutoring Landscape

In a previous post I noted that there are 2 kinds of online tutoring: Prescriptive tutoring and Drop-In tutoring. SMARTHINKING focuses on the Drop-In model. Within the drop-in market, there are 2 established companies -- SMARTHINKING and Tutor.com -- and at least one well-funded new company who may offer drop-in tutoring (TutorVista). Tutor.com has built its business by selling to public libraries who target middle school students. SMARTHINKING has built its business by selling to colleges, some high schools, and bundling with textbook providers. SMARTHINKING has tried selling to public libraries with limited success. Tutor.com has tried selling to colleges with limited success. Each company has tailored its service and pricing to fit its market.

Though SMARTHINKING has little or no competition in the higher education market, I have always thought that some company would emerge to compete with us. However, 2 dynamics have emerged over the past six months that will make it very difficult for new entrants to compete successfully in the college market.

The first dynamic is the growth of our partnerships with publishers. Starting in June, 4 of the 6 largest college textbook publishers representing over 70% of the college textbook market will bundle SMARTHINKING's services with selected products. These publisher partnerships will allow the 300+ schools who contract directly with SMARTHINKING to offer more tutoring services without incurring extra costs. For publishers, the addition of SMARTHINKING helps sell more books because schools want to extend their existing SMARTHINKING services. Schools have an incentive to contract with SMARTHINKING because publisers offer ways to defray costs. SMARTHINKING can now offer a school a complete solution on a single platform that can integrate SMARTHINKING tutoring, a school's own tutors, and tutoring provided by publishers. In addition to all of this, the branding that results from the marketing efforts of these publishers cannot be underestimated.

The second dynamic is the dramatic service level improvements that come with scale. Running a drop-in tutoring service is like running a call center without the call and without the center. The biggest difference is that session lengths -- the time spent on a call -- in most call centers is short. For online tutoring, the session lengths are long. This means that, to achieve consistently low wait times without signficant overstaffing, a drop-in tutoring center must have a lot of users. Our models indicate that a center needs about 35 sessions per hour to achieve average wait times under 4 minutes with an efficient staffing model. In the past year, SMARTHINKING has grown such that we meet these service levels across almost all of our available hours. Competitively, this means that any new entrant will need to signficantly over-staff prior to achieving student volume if the new entrant plans to compete on service levels. For SMARTHINKING, we will begin to integrate service levels as a marketing message to our current and future clients.

These 2 dynamics -- the interdependence of our schools and publishers and the predictability of service levels -- makes me increasingly confident in SMARTHINKING's ability to grow within and defend the college market from new competitors. These dynamics, plus the college focused service elements that we already offer such as 24/7 drop-in math tutoring and the world's largest online writing lab, make us the only choice in the college market.

Colleges (and High Schools) Will Compete On Academic Service Levels

Recently, I have given several presentations to higher education administrators about how call center theory can be applied to educational services. An online, drop-in tutoring service, like SMARTHINKING, is essentially a call center, but without the "call" and without the "center." To create this presentation, we developed a fairly complex model to analyze the interaction between the following variables:

• The number of tutors staffed;
• The average number of students expected;
• The length of a tutoring session;
• The desired average wait time for a student (the service level);
• And the variance embedded within all of these variables.

With this model, we can predict the number of tutors that need to be staffed (ie. 15) to meet a desired service level (ie. average wait time less than 4 minutes) with a desired tutor efficiency (ie. 75% of the time a tutor is working with a student). The upshot of all of this was that, to run a cost-effective, drop-in tutoring service with reasonable service levels, you need to have A LOT of expected students. This is becaues the session length for tutoring is far longer than that of your typical call center. I found this model fascinating, and I was sure that others would as well.

Others didn't. Perhaps I need to polish my presentation skills, but when I was explaining the model and the results I saw a lot of vacant stares and more than a few nodding heads. However, rather than ascribe the lackluster response to my own performance, I'll use it as a pretext to draw some generalizations about education. At a minimum, this will rationalize away my disappointment. Perhaps it will even be insightful!

As I thought about my presentation, I think the real reason that listeners were unmoved is that the presentation correlated with almost nothing in their daily work lives. In fact, at the beginning of the presentation, I asked how many schools had defined service level goals for faculty members to meet. For instance, were faculty required to return a paper or an e-mail in X amount of time? Only 1 school out of 150 indicated they had such service levels. It occurred to me that these basic principles of service are simply not considered when schools deliver education. This, I think, will change dramatically in the next 10 years.

As more classes are taken online, higher education increasingly becomes a commodity. Online, geographic barriers to student choice are gone. The remaining differentiators -- price and quality -- remain. In my opinion, the traditional pricing structure of higher education will soon crumble as well. If students can take an english 101 course at a community college for 1/3 of the price of the 4 year college, and the credit is comparable AND the student can take it online, pricing will eventually become more rational. With these changes, the only element left that an institution controls is its academic quality. Within academic quality, the content of general education subjects rarely change. So, for those schools not competing on student selectivity or brand, all that's left is the level of service that they provide to the student.

This is a lesson that has already been learned by higher education administrators in admissions and technology. Colleges understand the impact of service levels when recruiting students and the impact of service levels as it relates to tech support. It is ironic that the real product of education, student learning from courses and services, hasn't incorporated any of these lessons. For most schools -- particularly public institutions -- this is a result of the traditional higher education governance structure. Traditionally, academic decisions and business decisions are made by the faculty and the administators respectively. For schools that want to compete successfully online, academic and administrators will need to work together to focus on the services that provide the greatest benefit to their customers -- the students.