by Kenneth Rudich
In the last installment of this three-part series, we’ll look at the external forces analysis for a start-up business in 1976 that we know today as the University of Phoenix.
U of P external forces analysis
As we proceed, bear in mind we’re talking about the start-up of a for-profit business venture. The purpose of the MOS was to help determine if it was an economically feasible proposition.
Having earlier identified a potential market of non-traditional students for the University of Phoenix product (see part 2), the next major consideration revolved around the contextual forces that would influence the opportunity, whether for better or worse.
The primary external forces that merited consideration included the political forces, the economic forces, the demographic forces, the cultural forces and the competition.
Two political forces had to have entered into the thinking about the start-up proposition:
- Federal Government Subsidization Programs for Education: The federal government has an established tendency to subsidize higher education through low interest loans to students; and also grants, such as the Pell Grant, for students from low income backgrounds. The purpose is to improve access to higher education by providing an opportunity to those who would otherwise be unable to afford it. Nearly 40 percent of the roughly fifteen million students enrolled in U.S. higher education receive financial aid from one or more of the federal programs. The availability of so much financial aid for students meant there was rich source of funding for the U of P to potentially tap. In fact, it was reported to be the top recipient of financial aid funds in fiscal year 2008, receiving nearly $2.48 billion for students enrolled.
- Regulatory Factors: Getting access to government funded financial aid requires that the institution be accredited by an accrediting body. Receiving accreditation involves compliance with certain academic standards and other guidelines. It can be expensive, time-consuming and difficult to accomplish. This was a potential obstacle, but it was one the university was able to overcome by as early as 1978, when it was regionally accredited by the The Higher Learning Commission. It also has achieved accreditation for a variety of its specialty programs.
The U.S. economy went through turbulent times during the 1970’s. Though it’s difficult to say how much of a role this might have played in the start-up of U of P in 1976, there is anecdotal evidence to suggest that people frequently seek education and training to learn new skills or upgrade old ones when the economy is slumping.
This was also the period when the U.S. first began to experience what would later be recognized as a transformation from a manufacturing-based economy to a services-based economy, from unskilled jobs to skilled labor. The early detection of this trend could have prompted a reason to believe more adults would be returning back to school in order to remain viable in the job market (we now know there is a strong trend for lifelong learning). If so, it would have made the timing favorable for a start-up.
Lastly, the idea of a for-profit that could be a publicly traded company carried the prospect of having not only deeper pockets than most traditional universities, but also far more discretion when spending that money, particularly as it concerned advertising and promotion.
The U.S. adult population was on the verge of growing ever larger in size as the baby boomers, an estimated 78.3 million Americans, were beginning to enter their middle age years. This was a favorable factor, because it would significantly increase the pool of potential candidates in the targeted non-traditional student segment.
In addition, the military represented a large and growing body for attracting non-traditional adult students. Couple it with government subsidization, and therein lay another compelling reason to move forward with the start-up.
A great emphasis was placed on promoting diversity in the workplace and in higher education during this period in time. This represented another favorable influence. By targeting certain groups, the U of P could potentially strengthen its ability to cash in on the flow of financial aid monies.
And indeed, that’s exactly what it did. According to demographic information in a 2008 U of P report, its student/faculty population is more diverse than the national average for higher education institutions. Today, the student population is approximately 25% African-American and almost 13% Latino. The university states that nearly two-thirds of its students are women.
There are roughly 3,500 traditional institutions of higher learning in the United States, but none presented too great a worry for the U of P. There’s a big difference between operating a traditional university and running a for-profit business.
Consider this characterization of traditional higher education by UCLA professor Susanne Lohman: “All institutions are partially unresponsive to customer needs and grossly unresponsive to considerations of cost effectiveness. All institutions suffer losses on their teaching operations, and no institution ever goes out of business. If higher education were about making profits or achieving efficiency, narrowly defined, the implication would be to close down all the leading colleges and universities in the United States.”
As noted in part 1 of this series and further expanded upon in part 2, traditional higher education had a history of timidity for serving adults outside the 18-24 age range. Non-traditional students were barely on their radar screen. By fashioning programs and services that fostered the perception of being responsive to these adult needs, the U of P could conceivably gain a competitive advantage in that segment.
A big part of this boiled down to eliminating much of the bureaucracy associated with the traditional institution. For example, the U of P has an open enrollment policy (all one needs is a high school diploma or GED), and it provides associate’s or bachelor’s degree applicants an opportunity for advanced placement through its Prior Learning Assessment, which means, aside from previous coursework, college credit can come from experiential learning essays, corporate training, and certificates or Licenses.
Whereas the traditional university makes the student travel a rocky bureaucratic path, the U of P built one that is Teflon coated.
a mostly favorable outlook
As business ventures go, the conditions could hardly have been more favorable for starting up the U of P. As noted in part 1, it has grown substantially in size; and today, it is a wholly owned subsidiary of Apollo Group Inc. which is publicly traded (NASDAQ: APOL), an S&P 500 corporation.
But it all started with a thorough Market Opportunity Scan.