Bundled services and the Sigmoid-curve

From Links to Consider by Arnold Kling.  The subheading is Andreessen and Horowitz on higher ed; Joseph Politano on new business formation; Michael Huemer on passivity vs. activism; Lorenzo Warby on Pournelle's Law.  

Marc Andreessen and his partner Ben Horowitz discuss higher education. Pointer from Tyler Cowen. It’s a two-hour podcast, and if that is too long for you, I would say that the essential take-away is that:

1.  American colleges and universities offer an outstanding bundle of services. There are good reasons that they obtained a position of prestige in our society.

2.  In recent decades, they seem to have done everything possible to squander that position. Accordingly, the system seems increasingly ripe for disruption. In bundled industries, disruption usually takes the form of unbundling, so entrepreneurs should be thinking along those lines, rather trying to start competing universities.

They spend the bulk of the podcast making the case that the universities are in free fall. They do not really have time to delve into the potential for disruption.

I largely agree.  I think of it in terms of Sigmoid-curves and it is interesting to combine the two models (Sigmoid-curves and value bundles).

Any enterprise starts life at its founding at the bottom left; struggles to survive, and, if lucky, eventually emerges with some sustainable value proposition.  They then begin the long ascent of the spine of the Sigmoid-curve where they make the greatest amount of money with the least amount of effort.  Their value bundle proposition is unique, they have IP, they have few initial competitors - life is good.  But in a free competitive market, that eventually goes away.  Towards the top of the Sigmoid-curves, you begin relying increasingly on the monetizable value of the brand rather than any inherent unique value proposition.  Eventually, at the top, you are in a commodity market with hordes of competitors all competing on price.

At this point, a lot of luxuries and non-contributing functions or attributes - barnacles - that have accumulated during the good years, begin to be painfully dispensed with.  The enterprise becomes smaller, leaner, more focused.  At the top of the Sigmoid-curves all the inflection points are painful.  The enterprise is now competing largely on cost - the pennies are managed closely, the risks are mitigated aggressively, the margins are anemic.  It is a viable business but no longer a luxurious one.

And also one no longer with the margin which allow anything other than existential investments or risks.  Lean and mean.  

All businesses, all enterprises, all careers, all ventures tend to follow this trajectory.  In each journey along the Sigmoid-curve, there are those who falter and fall from the curve into non-existence or who are acquired by others.

This is where the Sigmoid-curve merges with the observation of bundling of services.  After the enterprise emerges as a viable entity from the bottom of the Sigmoid-curve, it has established a viable value proposition which is some bundled package of goods, services, and attributes which are demanded in the market at a price point which is profitable.  All along the climb up the spine of the Sigmoid-curve, goods, services, and attributes are added or removed from the bundle in order to maintain or enhance the market position of the bundle.  This is done more, and often less, consciously.

This rebundling is a challenging exercise in second-guessing what it is the market is actually demanding, further complicated by the fact that during the rise on the Sigmoid-curve, it is easy to accidentally add goods, services and attributes to the bundle which seem value-adding but which in reality are not.  They are merely cost barnacles.

In management language of a generation ago, we referred to a company's core competency and that is a useful frame, but incomplete.  The core competency is only pertinent to the degree that it reliably generates a distinguishing element of the bundle of goods, services and attributes which the market is buying.  Customers buy the bundle, only indirectly the competency.  

So what might be the bundle of goods, services and attributes which are being demanded by the education market?  I suspect they are different than the universities themselves are aware.  Indeed, just only recent having completed the life phase, unmentioned by Shakespeare in his seven stages, of putting three children through the entirety of the education system, I can virtually guarantee that most universities are unfocused on their core competencies or their critical bundle of goods, services and attributes and are overly focused on non-critical goods, services and attributes.  

For the top three hundred universities I would propose the following as the critical bundled core of goods, services and attributes in rough order of importance to students seeking a return on investment.

Brand affiliation

IQ screening (Griggs v. Duke Power) 

 

Self-discovery  

 

Access to social networks

Assortative mating

Access to social, commercial and career opportunities.

Access to status

Knowledge acquisition

That's an interesting discussion.  What do you hear from the campus pitches?  They typically are selling good food, new facilities, clubs, inclusiveness, diversity, fun.  The mismatch between the bundle being sold today and the bundle which launched the education sector up its current Sigmoid-curve fifty years ago is pretty wide.

The mismatch is not the only risk.  What if Griggs v. Duke Power goes away?  There goes a key feature of the bundle of services.  Companies don't have to use universities as a screen for smart recruits any longer.  They can test again.  

And to the point made by Andreessen and Horowitz, what should the bundle now be in today's market, under today's circumstances, and especially given where the institutions are on the Sigmoid-curve.  Visiting lots of campuses, one thought is always present in my mind from simple observation - there has been a huge amount of capital poured into physical construction.  Great if that was paid for up front with donations but still an ongoing operating cost which is large and getting larger.  And to the extent that any of that capital expansion was based on borrowing, potentially ruinous.  

What can be unbundled or rebundled from the above list to produce a more attractive and compelling value proposition to students.  Stronger focus on selection of capable future leaders, knowledge acquisition by those leaders, social network strengthening perhaps?  Who knows.  There is an endless set of possibilities.  Possibilities which can only be unlocked with vision, risk-taking, and hard trade-off decision making.  The luxuries of the the spine of the Sigmoid-curve are not sustainable.  

The sector is eating its seed corn, not dispensing with barnacles and value detractors and is not managing its bundle of goods, services and attributes in a fashion that will 1) allow it to compete in a commodity market of unbundled and undifferentiated services which are sold based on cost or 2) allow it to transition to a new value bundle which places it on a new Sigmoid curve (the better outcome).