Pitfalls of Vendor Selection and the Future of Higher Education

External vendors can be an effective business tool when internal expertise is unavailable or limited. In education, textbook publishers have been an essential external vendor for centuries. A recent experience has led me to question whether current trends in higher education, such as Internet based companion resources to textbooks which provide coursework and exams, are beneficial to the educational process. I believe that, when used properly, publisher resources can add to the educational process. When used poorly, these resources can result in a poor educational experience. When used exclusively, these resources are an insufficient substitute for highly trained and capable professors.

A Tale of Two Classes

My two classes last semester provided highly contrasting experiences. One class was taught by a practicing attorney with about 30 years of experience. He teaches in the evenings and had recently taken several years off before coming back to teach my class. The other class was taught by someone who has spent the past 11 years as a professor, during which time she completed her PhD. The outcomes from each class were surprising and provided me some insights into vendor selection and its effects on higher education. What’s interesting is that the first thing each professor said was how much he or she disliked the assigned textbook. That was the last thing the classes had in common.

As a result of his displeasure with the assigned textbook, the instructor for my ethics class added two additional books to the required reading for the semester. For each class session he assigned a half dozen or more papers, articles or topics for study. These included some of the most profound writings on ethics from all time. This amounted to hundreds of extra pages of additional reading aside from the textbook. One of the papers he assigned us to write near the start of the course solicited a statement of personal ethical inclination. When he found that most of the class leaned toward one particular ethical persuasion, he adjusted the future course content to include critical analysis of that persuasion. I’ve had similar experiences with other professors. It seems that there is always something about a textbook that’s not to a professor’s liking and they supplement it in some way.

The instructor for my accounting class also complained about the course textbook on the first night. Unlike other professor, there were no other books, papers or resources of any kind assigned. In fact, all the material for the entire course would come from the publisher of this book, including homework and exams. Another peculiar deviation from the first professor was a rather long complaint and warning about cheating and how so many students from previous classes had cheated and how she knew when they were cheating and so on. There was virtually no lecture in class, except to sometimes go through a problem from the textbook. In those cases she sometimes presented the material with a slight deviation from the text. Aside from those few minutes, the entire course was offered using resources provided by the publisher of the textbook.

This accounting course is the first and only college level course (graduate or undergraduate) that left me without a single artifact from my graded work. I don’t have a single assignment, quiz or exam to look back on, although the professor did allow us to look at the first exam for five minutes to ask questions before requiring us to return it.

The Pearson Solution

The textbook was Management Accounting: Information for Decision-Making and Strategy Execution (6th Edition). While the book may appear highly rated, I’m not sure the ratings are legitimate. All the five star reviews on Amazon are one liners about some clever feature of the book. None of them provide any details about the book, but instead say it’s “easy to read” or “practical and useful”. It’s impossible to say who is responsible for these reviews, but if you look at other reviews by the person who left the five star review for this textbook, you’ll see an interesting pattern. All reviews are one liners and they are all five star ratings. There are only three or four ratings, which include this book and another random product. I’ll let you draw your own conclusions about who is responsible for putting in those stellar reviews, but they are suspect and don’t describe the book I used.

Pearson has also created a companion website to accompany the  textbook. As part of the course I was granted eight weeks of access to this companion website. All homework assignments were completed and graded through this companion website. The homework was a combination of multiple choice and fill in the blank. Each problem could be done as many times as necessary to get the right answer. This was accomplished by changing the problem parameters and then going through the solution again. When number values were required, rounding needed to match the websites preferences, which was sometimes difficult to work out. The site would walk through the solution in a step-by-step fashion. Unfortunately, I never felt like I gained anything from the online homework. This may have been due to the format, but it may have been due to the fact that there was no lecture to prepare for the homework and the textbook did not cover the material in a coherent way. Technically, the site was stable and functioned as advertised.

The quizzes were always multiple choice, and I’m not sure if they came from the companion website or not. They did focus in on terminology from the chapter.

The tests apparently came from the Pearson material, and possibly from the website, based on comments from the professor. There were ten or so questions per exam. The choice of words was at times ambiguous. I don’t have either exam with me, which makes it difficult to give specific examples.

In addition to the textbook and the companion website, Pearson offers full solutions guides for each chapter, which include solutions to the problems, cases and possibly the test questions that were generated for each exam. The teacher used these extensively.

Nothing New?

While the Pearson Solution I’ve just described may not be new or novel, this class represents the first and only college level class (undergraduate or graduate) where the professor single sourced the material for the entire course. Outsourcing the educational experience to this extent was a completely new experience for me.

Outsourcing

When organizations lack specific expertise and capabilities, it’s often wise to seek a trusted vendor who has that expertise. The same may be true in circumstances where the cost to develop the expertise in house is too high. In the right circumstances, outsourcing expertise can make otherwise impossible projects possible. However, there are situations in which dependence on external capabilities, rather than hiring or developing those skills internally, is undesirable. In those situations, outsourcing can damage a company’s image and reduce the perceived value of its offerings.

When to Outsource Expertise

Outsourcing expertise makes sense when that expertise is not unique to a business. This may include management of commodity items, like computer networks, printers and office supplies. There are some cases where outsourcing is the only sensible option, such as with electricity generation. Every company uses electricity, but it would be extremely difficult to justify investment in equipment and processes to produce electricity in house. Other examples include the manufacturing and cleaning of uniforms or construction of facilities.

In the cases mentioned above and many others, there is no competitive advantage to be gained through development of these capabilities in house. In fact, the opposite is likely true. Due to economies of scale available to the vendors in a given space, any effort to develop similar capabilities in house would be costly and slow.

When Not to Outsource Expertise

On the other hand, there are many circumstances in which it is not appropriate or advantageous to outsource expertise. A few pivotal cases arise when the expertise relates to trade secrets, competitive advantage or exclusive positioning.

Naturally there are others, but these three are sufficient to explore possible pitfalls of outsourcing expertise. The first two should be obvious mismatches. Trade secrets differentiate one company from another. Without trade secrets, most outputs become commoditized, which reduces margin and increases competition in ways that diminish profits. When business factors provide competitive advantage, outsourcing can be dangerous. Factors likely to fall under this category include proximity to critical resources or patents and other intellectual property.

External vendors have a business interest in increasing their subscriber base. If expertise related to critical company differentiators, such as processes, materials, supply chain, customer acquisition, recipes, etc. is outsourced, there is risk that competitors gain access to it, or that vendor activities diminish its value.

Exclusive Positioning

Some products and services are entirely defined by a company. The value of products and services in those cases is also tied directly to that company and would likely decline in its absence. A look at the restaurant industry will help to illustrate both sides of this. Chain restaurants, such as Denny’s, primarily sell commodity style food offerings. This makes it easy to outsource many aspects of the food service business. Much of Denny’s success relates to its real-estate strategy, placing restaurants at key interstate off ramps,  rather than on the food it offers. Compare this to a seaside seafood restaurant with a proprietor who owns one or two small boats and brings in his catch fresh each day to serve his customers that evening. In the case of Denny’s, outsourcing would have very little impact on the perception of the public toward the company. On the other hand, if the small seaside restaurant outsourced the daily catch to another firm, this could have a severe impact on the quality and perceived value of their offering.

When the position of a company within an industry occupies a unique or niche segment such that perceived value is greater than competitors in the same industry, this is Exclusive Positioning. Heightened value is associated with exclusivity. In the example above, the seaside seafood restaurant has positioned itself as an exclusive provider of daily fresh seafood while Denny’s doesn’t claim to provide fresh or original food, at least not at a premium.

Similar expectations of exclusivity occur within the medical space. Doctors are expected to be expert at diagnosing and treating medical conditions. If a specialist doctor were to outsource diagnosis of illness to software programs and prescriptions to pharmaceutical company recommendations, he would no longer be exclusively positioned, since those software vendors and pharmaceutical reps serve many other medical professionals who would be in a position to provide identical service, regardless of individual capacity.

Consulting is another example of exclusive positioning. One problem with true consulting, in the traditional sense, is that it does not scale up. In other words, when one individual has acquired his exclusive position by virtue of many years of study and practice in a narrow field, it’s not possible to simply hire more warm bodies to fill his same role. If the exclusive position is to be maintained, then every person to occupy that position must be capable of providing the same depth and expertise. This is not generally possible in exclusive positions.
 

Education should be Exclusively Positioned

Of all the industries that should exhibit exclusive positioning, education is historically and culturally one of the most compelling examples. The acquisition of graduate degrees is very exclusive. It is expected that an individual who does obtain a graduate degree, such as a PhD, has very specific and deep expertise. By virtue of that expertise, a professor is then uniquely qualified to pass that knowledge on to his or her students. However, the expectations don’t end there. Culturally, there is an expectation that professors engaged in academia as a profession must go beyond simply imparting information. They are expected to craft unique course materials that cater to the latest research and the specific needs of their current students. They are expected to adapt the course over time to keep it relevant.

For the time being I’ll set aside a detailed review of the effects of Grade Inflation on the quality of college graduates, even at the most prestigious universities. It should be sufficient to say that grade inflation and the prevalence of standardized testing has the potential to impact incoming students and future professors. Hundreds of millions of dollars are spent on standardized tests which have not been proven to accurately measure or improve educational outcomes. I worry that we may be seeing the first wave of a trend that not only outsources testing, but instruction as well.

The exclusive position of higher education instructors is at risk of being outsourced to publishers of textbooks and standardized tests. In my experience, all professors but one have retained control of their course. They have secured their exclusive position by leveraging appropriate resources and supplementing them with a variety of other methods. What I worry about is the explosive growth of education and the trend toward online formats. As class loads rise and courses are more frequently taught online, will new professors have the time and capacity to create meaningful ways of teaching online, or will they buy into existing online resources that lock them into content, homework, quizzes and exams created by someone else?

Vendor dependence

Dependence on publishers for all course materials and evaluation mechanisms brings some serious risks. Introducing ancillary resources, to facilitate discussion or evaluation of student progress, will be increasingly difficult if an entire course is taught by way of a publisher’s companion website. Even if professors wanted to introduce other resources, the online infrastructure may not easily accommodate it. The proprietary formats used by different publishers may even make it difficult to use materials offered by competing publishers, which could result in a superior textbook being rejected due to technological integration issues. That surely is not in the best interests of the student or the learning process.

Fear of Cheating

Internet technology is fast moving, but still lacks maturity. When the largest corporations can’t ensure the protection of credit card data or other personal data, it’s no wonder that professors who rely on online resources are worried about cheating. In an increasingly electronic world, those who want to gain unauthorized access to instructional or testing resources will get access. It’s a fair bet that the solutions manuals for all major textbooks are available online already. The most sure way to combat cheating if you’re a professor is to come up with original material for your course.

Decreased Ability to Adapt

When a solutions manual is the primary source of truth in a course, adapting to students or contemporary circumstances doesn’t happen easily. In my accounting course, for example, every aspect of the course was compared to the solutions guide, which my professor kept in her folder, just out of view. When we had questions about the case we were working on, rather than look at what we were doing, she would compare the answer we had found to the solution guide, looking back and forth, and give a yes or no.

In one extreme example, I had apparently approached a case in a different sequence than the solutions manual. When I was discussing this with her, she became agitated and exclaimed that it was absolutely wrong. My team heard this and kept asking me to help them find the right answer. It took me twenty minutes to explain to them that the answer was right, but that the professor didn’t like the sequence. Some of them remained confused about the solution because the professor was unwilling to acknowledge that the solution could be achieved by following a different sequence.

The Future of Higher Education

There are many wonderful professors in higher education. There are also many fantastic textbooks and even online and offline resources which make the educational experience rich and meaningful. I believe that institutions and individual professors can maintain their exclusive position in the educational process. This will require them to question the value of available resources and to leverage or create alternative methods for supplementing inadequate resources.

I clearly have a poor opinion of the textbook used for my accounting course. However, as part of a coherent and thoughtful set of resources, it may have been very useful. Even if perfect textbooks and related resources existed, many of the pitfalls discussed above still apply. The point of this discussion is not to throw out a bad textbook, but to highlight the fact that what makes a textbook, or any other educational resource worthwhile, is the skill with which it is used by the professor. In his exclusive position, the professor is responsible, even accountable, to craft the educational experience.

Lessons in Business

In a broader sense, these same caveats apply to business in general. Exclusive position is a powerful tool to increase value and maintain profits in the face of competition. When outsourcing activities threaten exclusive position, it’s wise to carefully evaluate the true cost of outsourcing. No matter how compelling vendors may be, there is also great risk in single sourcing any function. After all, if a vendor can provide all of what you do, what is your purpose for being in business? What is your Unique Selling Proposition?

Once lost, exclusive position can be very difficult to recover.