Schools need new, innovative business models

six silos of varying heights

Educators should read Saul Kaplan’s new book, The Business Model Innovation Factory: How to Stay Relevant When the World Is Changing, so that when public education sector collapses they can’t say they weren’t warned.

After working as a private sector businesses consultant and doing a stint as “an accidental bureaucrat” in Rhode Island government, Kaplan founded the Business Innovation Factory, which he still serves as chief catalyst.

That job title is revealing.

Kaplan sees the function of  leaders as predominantly one of bringing together people to respond to challenges and giving them the freedom and support they need to get the job done even when the solution is totally disruptive to the way the organization has always done things.

Kaplan points out that in the industrial age—the era in which American public schools got their start—business models persisted for decades. Now a business model may last only a decade. It’s clear, Kaplan says, that in this century tweaking old business models is not an answer. He uses Blockbuster as an illustration of an organization that went under because it refused to see how Netflix, with a different business model, could do a better job of providing the value customers wanted.

“A business model,” Kaplan says, “is a story about how an organization creates, delivers, and captures value,”  whether the organization is a for-profit business, a social service organization, or  an educational institution.

  • Creating value is solving a problem for a customer or meeting a customer need.
  • Delivering value is merging people, processes, and technology within the institution to deliver the promised solution or meet the customer need.
  • Capturing value is making a profit adequate to finance fixed assets and to support ongoing operations and growth.

Schools as well as businesses have to define those three points.

Two major problems Kaplan mentions I think are particularly difficult for educators are to answer:

  1. Who is the customer?
  2. What is the customer paying for?

To find the customer, you have to find who pays for the product or service. In education, often the folks who pay the bills—for public education that’s taxpayers—are not the same folks who get the value. When teachers say they “work for the students,” they may be expressing an emotional relationship, but they aren’t expressing a business relationship.

For educational organizations, the second question is even less easily answered.  What the school may think the taxpayers want and what the taxpayers really want may be different. The extent to which schools accurately identify the problem the customer has and deliver solutions to the customer at a reasonable price will determine how long they will survive. It doesn’t take much imagination to see that the public education model could easily be replaced by a different education model soon: Charters and online schools are already experimenting with alternatives.

A hypothetical case may help to explain why getting the answers to those two questions right is so very crucial for public schools.

Suppose that a Bigg County School District decides its customers are parents of students and that those customers want students prepared for college work. To that end, BCSD cuts vocational education and puts the savings into providing college courses at the high school.

Now suppose that Bigg County School District’s analysis of its customers is wrong: Most of the taxpayers don’t have students in school. Suppose the majority of taxpayers believe students never come back to Bigg County after they’ve been to college. Those taxpayers may well regard the college prep program as a welfare for the rich paid for twice over by childless folks who pay taxes and then see their property values decline as the population dwindles.

That hypothetical situation suggests how an outdated business model can be suicidal to an organization.

The business model solution Kaplan suggests for existing organizations is to create “adjacent innovation platforms” within their organizations. The platforms require freedom to experiment with different ways to create and deliver value while the rest of the organization operates under the existing business model.  For that to occur, the innovators need to be allowed to borrow resources from inside and outside the organization and combine them in new ways, even when the innovations disrupt the current business model.

I’ve written about how some schools are already doing that, as well as about alternative revenue streams for schools.

One last admonition from the book:

All leaders should spend more discretionary time outside of their industry, discipline, and sector. There is more to learn from unusual suspects who bring fresh and different perspectives than from the ideas circulated and recirculated among the usual suspects. The big and important value-creating opportunities will most likely be found in the gray areas between the silos we inhabit. Get out more.

You can learn more about Saul Kaplan’s ideas at the Business Innovation Factory website, on his blog, or on Twitter @skap5. If you require more highbrow venues, he’s a regular contributor to Harvard Business Review, Fortune, and Bloomberg Business Week.

Photo credit: “Six Silos” uploaded by runrunrun

[2016-02-03 removed link to, which bots insisted was a broken link although it worked fine for me, and added link to the BIF website.]