Disruptive Forces Impacting Higher Ed – Lessons for Philanthropy

Lamp Bulb Tulip

June 2016

After a few years of a “new normal” following the Great Recession, disruptive forces with evident or potential impacts on higher education are reemerging in the headlines. Certain developments, such as growth in online education or experiments with new business models, never disappeared, and these and other disruptive forces today are presenting perhaps even bigger and bolder challenges that are also connected to ongoing social and political changes.

This overview summarizes five trends and forces that might be considered “disruptive” for higher education philanthropy – (1) Millennials, (2) Brexit and 2016 US elections, (3) accelerating growth in online learning, (4) federal tax reform and (5) persistent digital transformation. Besides picking up speed and influence, what do these realities suggest about disruptive challenges facing educational leaders and fundraisers? Here are a few:

  • Don’t underestimate the Millennials – their expectations are different.
  • Disaffected people who vote might change the world, almost overnight.
  • Leaders who hold tight to legacy business models may soon be standing alone.
  • Subtle legislative and policy changes can lead to oversized results.
  • It’s still not too late to translate “lessons learned” from digital disruption in other industries to shape innovation in higher education.

Additionally, they also present several questions that educational organizations planning campaigns might consider.

Disrupter #1: The Millennials

Millennials (ages 18-34) are now the nation’s largest generation, and more racially diverse, surpassing Baby Boomers (ages 51-69) this year. And Generation X (ages 35-50) is projected to outnumber Boomers in 2028. Not only are Millennials the most numerous generation and rising to positions of influence, they are beginning to support charitable organizations in greater numbers and with larger gifts as their income increases. Millennials are powerful in other ways – over half describe themselves as political independents, and they are “digital natives,” the only generation that has not had to adapt to the new platforms (internet, mobile technology, social media) – and they are the most avid users.

Additionally Millennials are more apt to support activities or issues that align with their values. A striking case is a recent Brand World Value Index that shows that Millennials favor Toms Shoes over Nike. While Toms is a fraction of Nike’s size and the estimated value of its entire company is less than 20% of Nike’s marketing budget, Toms ranks higher when respondents were asked about brands that “represent a future I believe in” and want to help strengthen. Unlike Nike, whose purpose is to “bring inspiration and innovation to every athlete in the world,” Tom’s goal is to give shoes to the millions around the world who do not have them by matching each sale to a donation, “one for one.” And the company has expanded to providing eyesight and water linked to sales its sunglasses and coffee. Those under 35 favored Tom’s because they perceive the brand as creating world value, not just shareholder value.

Some institutions have found Millennials and other younger donors more elusive because of the higher student loan debts and tougher job markets. As they build donor pipelines for the future, the forward-looking institutions are devising new digital strategies that appeal to younger donors (such as crowdfunding) and doubling down on making the case that donations at all levels truly make a difference.

Question: “To what extent should consideration of generational differences play a role in the strategy for a new fundraising campaign?”

Disrupter #2: Disaffected and Independent Voters

The values and social habits of younger voters also are driving election politics this year. Reports following the recent Brexit vote indicated that young people in the United Kingdom overwhelmingly wanted to “Remain,” but this demographic was not sufficiently cultivated or informed about the importance of their voting. More broadly, analyses found that the better-educated a locality was, the more likely its residents were to vote to “Remain”; these results correlated with earlier surveys linking higher levels of education to understanding the pros versus the cons of “Remaining” in the European Union.

In addition to the value of education for informed decision making, parallels and lessons for the U.S. presidential race emerged; one commonly discussed theme was the critical importance of leaders’ and stakeholders’ tireless, data-driven advocacy for their causes and institutions; another was “buyer’s remorse” after false promises before the election cannot realistically be fulfilled afterwards. For fundraisers, rocky financial markets bring donor uncertainty and immense distraction, but the core of their commitment – to respond to major opportunities and challenges – remains. As Jamie Merisotis, chief executive of the Lumina Foundation, said: “Philanthropy is about change….is systemic, not episodic, proactive rather than reactive.”

Question: “What are the major opportunities and challenges in our current social and political environment that might influence our campaign planning?”

Disrupter #3: Online Learning Is Accelerating

After publishing The Innovative University five years ago, Harvard professor Clayton M. Christensen continues to describe online education as an enabling “disruptive” innovation – an activity that starts in either “low-end” or “new-market” footholds that are overlooked by incumbent institutions. As real tuition for online courses is falling, and accessibility and quality are improving, he wrote recently, online “innovators are making inroads into the mainstream market at a stunning pace.” Here’s the evidence:

  • The percentage of higher education students taking at least one distance education course in 2015 was up 3.9% over 2014. While enrollments in higher education decreased overall, enrollments in online programs continued to increase for the 13th consecutive year, and accelerated increases are predicted for the next 3-5 years. Job seekers and talent managers increasingly recognize the value of online course certificates as an alternative way to gain and demonstrate marketable skills. What’s more, the U.S. Department of Education is piloting a program to provide federal financial aid for online courses.

Traditional brick and mortar universities are increasingly embracing online education for their growth. The Lumina Foundation reports that 58% of students work while attending college and another 26% are raising children as students and their families struggle to navigate “an outdated higher education system.” The expansion of this nontraditional market potentially means redesigning campuses, with fewer buildings and traditional classrooms, as the movement from campus enrollment to distance enrollment continues. Existing space is being used more productively to handle the distance learning increase for new educational formats (such as simulations, remote labs and blended learning) without constructing new buildings.

In a related vein, the recent layoffs at the University of Chicago illustrate “a failure to adapt” with the continued building of “grand campuses that cater to the traditional student” instead of anticipating the impacts of emerging technologies. “While facilities are important, schools need to be focused on a curriculum and delivery method that [together] accommodates the new economy – and that includes older workers, international students, those seeking certification as well as traditional learners,” writes Jason Boyers, President & CEO of Cleary University, a Michigan-based business school.

Question: “How do we think about using our fundraising campaign to begin building relationships with non-traditional alumni? Because of the trends toward their increased presence – e.g., in online education – how important a role should traditional campus facilities play in the campaign?”

Disrupter #4: Tax Reform

Congressional House Republicans released their Tax Reform Plan in late June without specifics about the charitable deduction, except to say the charitable and mortgage interest deductions will be retained yet made “more effective and efficient.” Focused on economic growth, the GOP blueprint was only the beginning of a comprehensive tax reform plan to be developed. Yet, the Alliance for Charitable Reform (a project of the DC-based Philanthropy Roundtable) does not “expect all these changes to be positive. However, lower tax rates mean more money in donors’ pockets and thus more money to donate.”

Meanwhile, President Obama has tried to reduce or eliminate the charitable deduction, but so far hasn’t achieved his objectives. Meanwhile, Presidential candidates Hillary Clinton and Donald Trump said they would preserve the charitable deduction. Initially Clinton proposed capping it at 28% but later backed off, and her change of heart was applauded in a published statement by the Association of Fundraising Professionals (AFP).

It’s also unclear what will happen to President Obama’s related proposal to close the tax loophole that lets donors deduct four-fifths of the value of a gift made to a school for priority athletic seating rights. Universities who set aside the best seats for fans who are generous donors have said this change could do serious harm in both the short and longer terms. For example, gifts tied to athletic tickets are as much as three-fourths of athletic annual fund totals in some institutions – and may be targeted for such important needs as student-athlete scholarships. What’s more, analyses have shown that giving to athletics is often the first step to becoming a major donor for other broader institutional initiatives for academics, facilities and named endowments. This revenue source is higher than TV sports contracts in some universities; with the increase in televised sports games, the negative impact on institutions could be a double whammy. As a result, government relations and athletics fundraising staff continue to sharpen their “case” for preserving this tax benefit.

Question: “How important is continuity in tax policy as we consider our next campaign goal?”

Disrupter #5: Digital Revolution

Higher education can learn important lessons from two industries – newspapers and health care. Both have experience systemic upheavals deeply connected to digital disruption and have learned, in some cases belatedly, about the necessity of moving quickly and at scale.  Frederick Singer, a founder of WashingtonPost.com and a tech CEO, points to several key factors in the newspaper decline of the 1990s that have similarities in higher education trends: erosion of the primary revenue source (advertising revenue), slow pace of applying real-time reader data for editorial decision making and fear of unstructured dialogue with readers. “Both industries shared huge barriers to very complex internal dynamics within the institution that made change more difficult to execute,” he wrote. “By focusing on the major threats, leveraging the power of engagement to redefine the offering and using real-time behavioral data to iterate, institutions can not only match the threat, but emerge with the opportunity to extend their mission and scope as hubs for lifelong learning.”

The experience in health care disruption has taught the importance of recognizing the signs of change early on, acting promptly and adapting to the changing environment while maintaining financial strength and maneuverability, according to two analysts. They cite six signs of disruption in health care that are relevant for universities: (1) the perceived value of the service is declining, (2) costs to purchasers are high and have been rising more rapidly than inflation, (3) government provides a significant degree of funding and is pushing back, (4) legacy organizations don’t place a premium on convenience, (5) the current business model is heavy on buildings and light on technology and (6) the ability to shift costs from one payer to another is still diminishing. “By developing a vision of the new higher education business model, and adapting to that new model while in a position of strength, universities can avoid some of the battle scars that health care organizations have experienced and transform themselves for long-term success,” write analysts Jason Sussman and Charles Kim of Kaufman Hall, a provider of strategic, capital and financial advisory services and software tools for healthcare and higher education organizations.

And Amazon, a leader in disruption, continues to forge ahead. At the end of June, the online giant announced plans to make a major foray into the education technology market for primary and secondary schools (K-12), where Apple, Google and Microsoft already compete. Its online marketplace, “Amazon Inspire,” will have tens of thousands of free lesson plans, worksheets and other instructional materials for teachers by back to school time in late August and has features similar to frequent Amazon shoppers, including a search bar, user reviews and star ratings for products. The technology market for schools is increasingly crowded – and can be expected not to stop there. Ed tech analysts said the growing market for digital education materials is likely to prove much more valuable over time than the original foothold in school computers – significantly reducing the $8.3 billion spent annually by schools (pre-K through 12th grade) – on physical textbooks, texts, professional development resources and administrative materials.

Question: “What role – if any – should the Foundation, Advancement or Development Office play in influencing our university’s strategic approaches to minimizing threats and seizing opportunities in this environment?”   



“Millennials overtake Baby Boomers as America’s largest generation,” Pew Research Center, 4/25/16.

”Nike Spends Billions on Marketing, But Millennials Still Like Toms More,” Fast Company Co-Exist, 6/23/16.

“Brexit: college-educated Brits wanted to stay. Everyone else wanted to leave,” by Libby Nelson, www.vox.com, 6/24/16.

“Brexit Vote Will Force Philanthropy to Tackle Many Tough Issues,” by Vikki Spruill, The Chronicle of Philanthropy, 6/27/16.

“What Is Disruptive Innovation? Twenty years after the introduction of the theory, we revisit what it does – and doesn’t explain,” by Clayton M. Christensen, Michael Raynor and Rory McDonald, Harvard Business Review, December 2015.

“Babson Study Distance Education Enrollment Growth Continues,” by Marilyn Roca Enriquez, www.hispanicoutlook.com, 5/16/2016.

“3 Online Education Trends That Will Shape How Your Hire in 2016,” by Rick Levin, CEO, Coursera, Forbes.com, 2/25/16

 “What Higher Education Can Learn from the Fall of the Newspapers,” by Frederick Singer, Forbes.com, 3/28/2016.

“Significant Forces Changing the Higher Education Market: Impact of Non-Traditional Students,” evolllution.com, 4/21/2016.

“Is Higher Education Suffering a Crisis of Budget, Buildings or Failure to Adapt?” by Jason Boyers, President & CEO, Cleary University, www.huffingtonpost.com, 6/26/16.

“Can online learning lead to productivity gains through savings on campus facilities?” www.tonybates.cam 11/10/13.

“House GOP Releases Tax Reform Plan,” http://acereform.org, June 2016.

“Obama Wants to End Tax Deduction for Donations to College Athletics,” by Kristi Dosh, businessofcollegesports.com, 2/3/15.

“College Sports Ticket Tax Break Would Vanish in Obama Budget,” www.bloomberg.com, 2/2/15.

“6 signs of disruption: What higher education can learn from healthcare,” University Business, April 2015.

“Amazon Unveils Online Education Service for Teachers,” by Natasha Singer, www.nytimes.com, 6/27/16.