Our guest today has been called one of the top three management thinkers in the world, with an extensive awards list for his contributions to innovation and strategy. The New York Times and Wall Street Journal best-selling author Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth’s Tuck School of Business, a Faculty Partner at Silicon Valley incubator, Mach49, and an Executive Fellow at Harvard Business School. Today, we’re talking about the disruption of higher education, how corporations and the private sector need to step up, and the ways in which technology will upend our entire outlook on education and hiring.

Paul Sephton: Perhaps it’s good for us to start off by contextualizing why higher education is a different need in terms of a post-COVID world and a specific focus for you compared to K-12 education. How does it differ from K-12 in terms of its traditional background and how can we react to it with a COVID conscious mindset?

Vijay Govindarajan: Higher education is close to my heart because I am part of that industry. K-12, the age group is different than the four-year undergrad education, but there may be some similar fundamental changes we may see in K-12 as well as in higher education. In K-12, the social interactions are so critical that even when we go to post-COVID, when we return to face-to-face, I have a feeling K-12 technology may only augment their business model. By augmenting, I mean they will use technology to make the face-to-face experience even better. Whereas in higher education, technology has the potential not just to augment but even disrupt. So therefore, the difference is that in higher education we may see more transformation as compared to K-12. That being said, even in K-12, technology is going to have an impact because great technologies can enable great teachers to deliver face-to-face even better.

When we return to face-to-face, I have a feeling K-12 technology may only augment their business model. By augmenting, I mean they will use technology to make the face-to-face experience even better.

Paul Sephton: You’ve spoken about three primary models with higher education, and that’s the Augmented Immersive Residential Model, and then the hybrid model, and a fully online model. What do you think education leaders in higher education should be considering at this point in time as they look to future-proof themselves, which is now more important than ever, and which considerations should they bear in mind with these various models?

Vijay Govindarajan: I think the answer lies in the way you frame the question, and that is that these three models are not either/or. It is not one size fits all. There are around 3,000 universities in the US. Of that, I don’t think every one of them will follow the same model. And I see the augmented four-year residential model really for what I would call universities with prestige, because now we are talking about universities who have some structural advantages because of either their brand name or the kind of alumni that they have, the kind of students that they attract, because there, they value the face-to-face. The reason they’ll come to a four-year education in a prestigious university is they want to benefit by the brand name. There, I would say the augmented residential model would be probably the long-term strategy. By that, I mean technology will make the four-year education even better.

Whereas the hybrid model might be more appropriate in schools which are finding price pressure because they are second tier universities and colleges, which have so far been hiding behind the price umbrella of the top tier universities. If the top tier universities charge $300,000 tuition, the second-tier universities charge $275,000, because they are hiding behind the price umbrella set by the top universities. There, there’s going to be price pressures. There, they will go to a hybrid model where they can dramatically lower the tuition but then increase the enrollment, and that way they can be financially successful. Now, how you can do this is you find courses that can be delivered online more effectively than face-to-face. So, if it is a course which is primarily delivering content to the students where there is no interaction with the students, that can be done online. In fact, maybe to back up, I would say there are three very important things universities do, and that is the reason why a “one size fits all” approach doesn’t work.

What universities can do and should do is focus on the co-creation of knowledge and what I call “artificial intelligence resistant capabilities.”

The first thing they do is impart knowledge. This is to offer predetermined answers to predetermined questions. One plus one will never become three. It’s always two. So, that’s what I mean. That’s one type of knowledge transfer. The second is co-creation of knowledge where students and faculty get together and create knowledge together, which means problem-solving, or an engineering lab where you design a robot, or a physics lab, where there is co-creation of knowledge. Third, what I call skills and capabilities that are “artificial intelligence resistant.” What I mean by that, this is negotiation skills, interpersonal skills, confidence, character, ethics, connecting the dots. There are lots of skills and capabilities which computers cannot replace today. What can migrate to a computer platform is the first one, which is pure knowledge transfer. What universities can do and should do is focus on the co-creation of knowledge and what I call “artificial intelligence resistant capabilities.” So, going back to the second model, the hybrid model, the universities feeling a price pressure will find the first one, which can be imported online, and thereby the four-year program could well be two years, but then the other two years you do online courses, and you still get a four-year degree at the end.

The hybrid model brings the price point down because online learning, it scales. There’s economies of scale. The third model, fully online, is where this is meant for students who will never go to a four-year college. Today in the US, there are about 12 million high school grads who never go to college. So, they go to work for McDonald’s making minimum wages. They go to lift packages in Walmart. Now, they will not go to college, therefore they will never experience the third thing, the artificial intelligence resistant capability. They’ll never experience that. And they can’t afford the four-year college tuition. For them, a fully online model could work. So instead of a $300,000 four-year college, can you create a $5,000 four-year college? Fully online. Part of what I’m saying is there’s no one size fits all because the needs are different. They’re different customers needing different things.

Paul Sephton: I’ve read recent pieces by thought leaders like Scott Galloway, talking about universities in the US becoming the new luxury brands. And you mentioned a $300,000 degree and all of the non-AI skills that you get from that, but you’ve also said that there are new digital capabilities that can make a residential model even better. So if we’re looking at the Augmented Immersive Residential Model and the really high value skills that you can get, which are the soft skills, the EQ, camaraderie, networking, and negotiation, how do you think they can lean in instead of fearing potentially the digital disruption that we’ve seen accelerated this year, and use those digital capabilities to even greatly enhance their offerings as these top tier universities?

Vijay Govindarajan: I predict amongst the 3,000 universities, there will be a shakeout. And by the way, just to back up for a moment, we can put universities into two camps, public universities and private universities. And public universities has been one of the biggest innovation in America because it has brought social mobility, economic mobility, because it educates a lot of people. But what has happened to public universities is that prior to the COVID-19 pandemic, their financial situation was very precarious because public universities are funded by states and states have been consistently decreasing funding for public universities. That means the public universities are already under tremendous financial strain. Now, come to the private universities where 20% of the American students go to private universities.

Now, the question you’re asking is if the digital disruption really takes off, what is going to happen to these universities? I have a feeling a lot of them will just not be able to survive.

As for private universities, I’ll put them in two camps. On the one hand, you’ve got the prestigious universities like Dartmouth, Harvard, Princeton, Yale, and so on, and so forth, which have got endowment, prestige, brand name, et cetera. On the other hand are the other private universities, which primarily don’t have endowment but they depend upon tuition fees to run their school, and which have been suffering because the student enrollment has been declining in the US, because the number of children born, number of people going to college has been declining. Therefore, there has been a phenomenal pressure on a lot of the universities before COVID. Now, the question you’re asking is if digital disruption really takes off, what is going to happen to these universities? I have a feeling a lot of them will just not be able to survive. So, there will be fallout, but that doesn’t mean everybody’s going to fallout except the prestigious ones. There will be room for a lot of universities still, but they will bifurcate into these three camps.

Some universities, such as the prestigious ones, will continue to charge $300,000 and augment their model with technology. There’ll be hybrid models, which will drop the price from $300,000 to $100,000 but serve a larger population. And then there’ll be fully online model. So they don’t offer the same value because the fully online model is not building the system capabilities that the augmented model does. The hybrid model is not producing the same value as the augmented residential model. But the needs of these customers are different. Their alternative is nothing, therefore an online model is effective. So, the answer to your question is yes, of the 3,000 universities and colleges, some will just go out of business, not all of them, but then they will fall into these three camps.

Paul Sephton: Where’s the push and pull between universities wanting to still offer four-year degrees because it’s what candidates feel they need to enter the job world and organizations requiring four-year degrees for candidates to potentially get employment?

Vijay Govindarajan: This is how I think about this, Paul. Let us, again, back up and look at some facts. The gross enrollment ratio in the US is 70%. Gross enrollment ratio is the number of students who attend four-year colleges divided by the number of students who graduate from high school. So that means 30% of the students who graduate from high school don’t go to four-year college. But here is the real deal, of the people who go to four-year college, only 55% get the undergrad degree. That means the effective gross enrollment ratio in this country is only about 30%. That means 70% do not get a four-year degree. So let us start there. Now, the question is about the 30% who get the four-year degree. Recently, I had a discussion with the president of a very prestigious university, during which we made a prediction with which we both agree.

My 50-year prediction is that of the 3,000 universities and colleges, 90% will go out of business. 90%. There’ll be only 300 left because the 300 is enough to attend to who really needs the four-year degree. Most of the people need what I call “competencies.” These are job-oriented competencies. That means you do these four courses, you can be a computer programmer. You do these five courses, you can be a writer. You do these six courses, you can be an economic analyst. So, these are competencies. They’re not a four-year degree, they are competence oriented. The 300 universities will also enter that market using their brand name, using their prestige. So, Dartmouth can also create not only the four-year residential immersive program, which is their high value-added program, but they can take four computer courses that they offer, offer them online, and say, “For anybody who takes these four courses, we will certify you as passing these four courses.” So then, you can be recorded by Google as a programmer.

Competence based education can be delivered using digital technologies, 100% online.

Now, I am not saying I want this to happen. I am saying this is likely to happen. When this is likely to happen, this creates an enormous disparity in income. There will be tremendous disparity in income between the peak talent who’s going to command a lot of salary, and then these others who are competency based, where the salary is of course going to be a lot less. Therefore, we need to figure out other social safety networks to make sure that the society remains together and we don’t create a revolution in the process. I don’t have all the answers. I am making a prediction. The higher education industry is going in a direction where it’s going to bifurcate between four-year undergrad education and competence based. And the competence based education can be delivered using digital technologies, 100% online, because you take these four courses, and you make them an expert in writing. I can give you those four courses online.

Now, if you move to that world, then our university capacity is too much. We don’t need all these universities. We don’t need all this brick and mortar. So this will be similar to what happened to US steel in this country. Once upon a time, if you went to Pittsburgh, you saw a lot of steel mills. I don’t see anything now. They’re all gone, because of excess capacity. So, that is the long-term prediction. Now, where’s the pull and push going to come from, you’re asking, is Google does not need the same level of talent for every employee that they recruit, they also need a lot of people who just write codes. You don’t need a PhD from Caltech in computer science to be writing codes. But now, the knowledge is moving up. The value of knowledge is moving up. That is being captured by prestigious universities. Caltech is moving up in careers because they are only focusing on co-creation of knowledge and AI resistant skills. So, the people who are coming out of Caltech are superior in that sense, therefore they will command a higher compensation. And so we are going to create two different societies.

Paul Sephton: I’m sure you’ve had a lot of students come up to you as well and say, “What should I do? Should I continue with my degree right now? Should I defer? What are my options?” What do you think your top advice is to current students of yours or people who are considering their prospects right now for higher education in the midst of this disruption in order to prepare themselves as best they can for a competitive job landscape in years to come?

Vijay Govindarajan: You see, there is a double-edged sword of COVID. COVID means colleges have gone 100% online. This fall, Tuck School was 100% online. Dartmouth, 100% online. Most of the universities were 100% online. Think about if you’re a freshman entering college, you don’t know anybody, you don’t have any friends, and you’re asked to come to campus but then take all the courses online. And social experience is one of the reasons you come to a four-year college and there is no social experience to speak of. So, you will say, “Should I defer?” But the problem is that COVID is a double-edged sword. Now, deferral in place, you can do one or two things when you take a one-year pass, you can either travel, which has been killed by COVID. So I can’t travel. I’ll get a job. A job is also drying up. So, I am caught between a rock and a hard place, because if I don’t go to college and postpone for a year, I don’t know how to use my time productively.

Therefore, most of them, even though they would rather not come to college and start college online, they have come to college because their alternative also disappeared. But what I would advise them is that this is an extraordinary event for us, we have never faced this kind of an event before. We had crises before. 9/11 was a major crisis, but it only affected a part of the population, whereas this COVID-19 is affecting everybody. This is one which is affecting every human being on planet Earth. Whether you’re rich or poor, doesn’t matter, white or black, doesn’t matter. Whether you’re living in UK, or US, or Africa, doesn’t matter. So, they have to understand, this is an extraordinary event where everybody is caught up, therefore you have to make some personal sacrifices.

Don’t just teach what you are currently teaching face-to-face, but on Zoom. That not online education. Try to reimagine your course online.

I would advise them to get the best education that they can online. Because if that is the only option you have, then that is the only option that you have. And I would advise the universities the same way: give them the best online education. Don’t just teach what you are currently teaching face-to-face, but on Zoom. That’s not online education. Try to reimagine your course online. That means you should be able to do something that you cannot do in a face-to-face offering. So, my advice to universities is that this is a punishing time for students. Do your very best. To the students, make the most of it. And since everybody’s on the same boat, it is not that you’re at a disadvantage, because everybody’s in the same boat. Get as good an education as you can, secure a job, and then hopefully we can think beyond COVID, we can find a better business model.

Paul Sephton: As one of the leading global experts in innovation and consulting to so many organizations, how do you think we can immunize innovation moving forward as one of the biggest threats to that loss of those soft moments, random run-ins, serendipitous occasions?

Vijay Govindarajan: This is what I would say. I think now that the vaccine is there, in hopefully another six months we will get to a better place. I don’t think we will go back to exactly the same way we operated in 2019, neither will we have to completely change. I think that it’s going to be a new normal. The new normal in the way we work. So therefore, there will be lot of remote work post-COVID and exactly for the kinds of activities that you talked about. There are a lot of meetings which are unproductive which can be done through remote. For a lot of other work, we don’t have to come to office. It can be done at your own home. But there are two very important things for which we need to congregate people. One is exactly what you talked about, innovation. When you’re doing brainstorming, I want to see the body language. I want to take a five minute break and go for a cup of coffee. I want to write things on the chalkboard.

Organizational culture is about emotional connection. It happens only when people meet. And though culture is a very abstract thing, it is also a really powerful thing.

There, you have to bring people together. Therefore, head offices will become hubs for innovation. So you don’t need to come to office for everything, you need to come to office for those times where you’re brainstorming and coming up with new ideas. The second reason why we need to come to the office is organizational culture. Organizational culture is about emotional connection. It happens only when people meet. And though culture is a very abstract thing, it is also a really powerful thing. Culture is a glue that helps companies to behave in certain ways. It’s about beliefs, it’s about what you value, et cetera. And culture cannot be built completely with remote workers.

So for these two reasons, we will come together. The office will become a hybrid model, and it’ll depend upon type of company and type of jobs. So, if you’re a worker in a Ford motor factory, you got to come 100% because you can’t produce an automobile by sitting at home. But even in Ford, there are certain jobs which can be done at home, such as back office or something like that. But Ford will have to think about the portfolio of jobs and say there are certain jobs that can be 100% done at home, there are certain jobs which 100% will require you to come. Most of the job will be hybrid, where you come to office for culture and for innovation. The rest of the time you stay at home.

Paul Sephton: This has definitely been an eye-opener. We’ve been speaking with Vijay Govindarajan in conversation on the future of higher education and its relationship with corporations and the jobs we will be skilled up for in the future. Vijay, a huge thank you for the time. If you liked this episode, please don’t forget to subscribe to stay up to date on our next release. Until then, cheers for now.