A Question For Richard Karlgaard

What is the transient competitive edge?

By AGB    //    Volume 25,  Number 3   //    May/June 2017

Economic uncertainty, global competition, and technological advances are having profound effects on the higher education sector. Award-winning entrepreneur and Forbes magazine publisher Rich Karlgaard, a plenary speaker at AGB’s National Conference on Trusteeship in April, looks at how the 21st-century university must adapt to this changing landscape.

How has the post-recession economy since 2009, particularly the recent lag in the 50-year GDP growth trend, affected the higher education sector?

The U.S. economy has grown at 2.9 percent per year, on average, since the end of World War II. During those 72 years, we’ve endured 11 recessions—some of them severe—along with eight other temporary cessations of economic growth. Yet the economy has averaged almost 3 percent growth per year through it all. So when the economy is not officially in recession, it should experience 3.5 to 4 percent growth.

The 2008–09 downturn—aptly named the “Great Recession”—ended in June 2009, according to government figures. But growth since then has been shallow, averaging only 1.8 percent per year. The economy is literally growing at only half of its normal rate following a recession.

This lackluster growth has continued for eight years. Economists and politicians debate the reasons, but the effects are easy to see. People have less money to spend. It’s no surprise, then, that they look at higher education costs—which have risen two to three times faster than inflation for many years— with new, skeptical eyes. People who pay the high costs of college want to know the return on investment.

In this environment, colleges and universities will struggle to find a balance between new desires for a better rate of return and traditional ideas of what a college should be.

You’ve noted digital disruption has affected industries such as media, retail, software, and mobile devices. How will digital disruption affect higher education, and will the conditions for failure of some institutions be present?

The Netscape browser introduced most people to the internet in 1995. Commerce followed, and a business disruption was born. From 1995 to 2000, new web businesses were tried, and a few, like Amazon and Google, showed early success. By the early 2000s, business disruption by web startups was underway. Think of 2000 to 2015 as the period of low-hanging-fruit disruption. New “digitally born” competitors transformed lightly regulated, low-barrier-toentry businesses—retail, travel, music, and publishing.

Now we’ve entered a new, more dangerous phase of digital disruption. More heavily regulated and high-barrier industries are feeling the heat. Transportation is being disrupted by ride-sharing services. Manufacturing and agriculture are being transformed by the IoT (Internet of Things).

Higher education is not immune to this disruption. Massive open online courses and augmented reality have been slower to disrupt colleges than some had forecast five years ago. But technological and economic revolutions are often like that. Bill Gates once said that progress can appear slow during a two- to five-year period, but utterly transformative over a 10-year period.

What is the transient competitive edge? How can higher education adapt the transient edge?

I owe this insight to Rita McGrath, a professor at Columbia Business School. She believes business disruption and evolution are speeding up. Her conclusion is that sustainable advantages in business are more perishable than before. The old classic business strategy was to (1) establish an advantage, (2) erect barriers to entry, and (3) leverage the heck out of your sustainable advantage for as long as you could, and generate as much profit as you could during your time of sustainable advantage. But today’s cheap and powerful technology, combined with richly backed entrepreneurs and global competition, can rapidly erode your sustainable advantage.

What replaces sustainable advantage is the ability to rapidly sense, and act upon, temporary (or transient) advantages. Two masteries will allow organizations to do this. One is a digital backbone that captures and analyzes information faster than competitors. Amazon is an example. The other is an organizational culture that lets people quickly act on the information. Such a culture is flat (in hierarchy), entrepreneurial, and high in trust and communication.

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