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The times they are a-changin’

Posted: July 26, 2013 at 5:18 pm

What surprises me the most about the announcement by former employer, Thunderbird School of Global Management, of a strategic alliance with higher education company Laureate International Inc., is not the decision itself, but the intense, negative press it has attracted.

As way of background—and recognizing I may be a bit biased—Thunderbird is a gem in American higher education.  Founded in 1946, it is the first school to be established anywhere in the world to train globally minded business leaders. Its multidisciplinary approach, its vast alumni network, its global curriculum are unparalleled. A number of impressive international executives, CEOs, entrepreneurs and diplomats around the world got their start at Thunderbird.  And its brand has become synonymous with international management.

Yet, as a small independent school, Thunderbird has real structural disadvantages.  It does not enjoy the economies of scale, the built-in hedge against demand cycles, nor the public subsidies of large public universities.  And it does not benefit from the large endowments that support some of the private schools it competes with.  While the school has managed to punch above its weight and do much with relatively little, its potential has always been constrained by the fundamental limitations of its underlying financial structure.

Thunderbird is not unique in this regard.  This very week, the New York Times reports how declines in enrollments are putting pressure on many small colleges.  And Time magazine anticipates that mergers and acquisitions will become more frequent as schools seek scale to remain competitive.  In 2005, the Monterey Institute of International Studies—which shares some characteristics with Thunderbird—became an affiliate of Middlebury College.  And in 2007, my also former employer IE Business School—consistently ranked among the best business schools in the world—structured the purchase of a proprietary university near Madrid.  If anything should surprise us, it is the fact that we haven’t seen many more transactions like these in an industry that is deeply fragmented and therefore ripe for consolidation.

Based on what I have read in the press releases, Thunderbird’s proposed alliance seems quite innovative in that it tries to achieve scale by leveraging the resources and global reach of a large organization with campuses around the world, while retaining the non-profit, independent status of its academic core.  Like any innovative transaction, this one is not risk free by any measure.  But the option of not doing anything is perhaps riskier, if one looks at what’s happening across higher education.

Since the announcement, I’ve observed two sets of reasons why some media and many alumni have reacted so negatively.  And while I am sympathetic to one of them, I disagree with the other.  Like many alumni, I too would prefer to see Thunderbird remain independent and in full control of its own destiny.  That’s what I worked for as president and, in an ideal world, that’s the status that would best guarantee that Thunderbird remains committed to its foundational mission.  Having said that, I would much rather see Thunderbird re-invent itself into a new form that could grow and thrive than risk seeing it become irrelevant or, worse, fall victim one day to ongoing competitive forces.

The part that I have more trouble with is the visceral, negative reaction that the concept of for-profit higher education still provokes.  To be clear, I am the product of public education, I believe in public education and I am dedicated to advancing public education.  Yet I have a hard time understanding why, even in a country that is as proudly pro free-market and private enterprise as this, we see business in higher education as suspicious if not outright morally wrong.

Granted, some for-profits have made mistakes in the last few years (so have some of the finest public universities).  But they have also shown to be well-suited to innovate and grow in certain areas, in some cases better than either public or independent institutions.  Companies like 2U, Bisk Education or Pearson Learning Solutions are helping well-established private and public universities develop online programs.  University of Phoenix serves more students in America than any other university.  Laureate has created the largest global network of universities in the world. And the most fashionable trend these days, the famous MOOCs, are being fueled by private companies Udacity and Coursera—the latter of which, by the way, just received a capital injection from Laureate itself.

Higher education needs resources and ideas.  And if private individuals are willing to invest their own resources to test new ideas, I for one celebrate it and hope some of the ideas will end up working out.

Only time will tell whether the Thunderbird-Laureate partnership will be successful.  But at the very least, it will offer a case study in entrepreneurial decision-making and institutional innovation in an industry that is in dire need of them.

I wish my former colleagues all the best as they move into this new chapter.

 

 

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