Faculty Development Department
Business Model for Online Learning at RIT
Research and Recommendations
Prepared by:
Donna A. Dickson
Anne Canale
Jeremiah Parry-Hill
Michael Starenko
Lynn Wild
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Overview
Online learning is a growing trend in higher education, driven in part by the proliferation of
academic technologies currently available, in part by student expectations for technology usage
in their courses, and in part by faculty member recognition that online instruction is the “wave
of the future” (Brainard & Richards, 2010).
According to the report, Going the Distance: Online Education in the Unites States, (Allen &
Seaman, 2011, p. 4):


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Sixty-five percent of all reporting institutions state that online learning is a critical part
of their institution’s long-term strategy
The 10 percent growth rate for online enrollments far exceeds the less than one percent
growth of the overall higher education student population
Thirty-one percent of all students in higher education take at least one course online
Many experts have identified online learning as a disruptive innovation for higher education
(Christensen, Horn, Caldera & Soares, 2011). A disruptive innovation is one that allows a simple,
affordable and accessible product to replace one that is more complex and expensive and less
accessible, even if the initial quality of the new product is inferior. Disruptive innovations have
led to the downfall of many successful, well-established organizations that failed to recognize
the potential impact of the disruptive innovation.
Organizations faced with a disruptive innovation are advised to consider not just the innovation
itself, but how their business model affects adoption of that innovation. Organizations that
“plug” a disruptive innovation into an existing business model find the business model “coopts” the innovation because as with all systems, the existing system (in this case the business
model) struggles to maintain the status quo (Christensen, et al., 2011).
Therefore, experts stress that in order for existing institutions of higher education to
successfully embrace online learning as a disruptive innovation they must (Christensen, et al.,
2011):


Set up an autonomous online learning business unit, unfettered by existing processes
and priorities
Leverage existing fixed resources for this autonomous online learning business unit to
create a cost advantage over the low-cost disruptive innovators
2
The purpose of this report is to evaluate the advantages and disadvantages of creating an
autonomous online learning unit for RIT as well as the funding arrangement for the online
learning business model that will support RIT in achieving its online learning strategy:
Vision
Online learning is provided at RIT to ensure the highest level of student
satisfaction with learning options and flexibility and is a framework to provide
access to and continuity of learning for students, regardless of their location.
RIT will be recognized worldwide for state-of-the-art online learning pedagogy
and the innovative application of academic technologies to supporting student
success.
Strategy
The overarching strategy for Online Learning at RIT is captured by three guiding
objectives:



To expand online and blended learning opportunities to better meet the
needs and expectations of prospective and current students
To provide students and faculty with enhanced experiences in teaching,
learning and collaboration that reflect current business practices
To ensure access to and continuity of learning for students, regardless of
their location
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Online Learning Business Models
As with any venture, there are a number of business model options for online learning at RIT.
Selection of the most appropriate business model requires evaluation and definition of a
number of elements (Christensen, et al., 2011):

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The value proposition
What is unique about the focus of the online learning initiative, from the students’
perspective
Resources
What staff, equipment, technology, and facilitates are required to deliver on the value
proposition
Processes
How must all who are involved work together, and what training, budgeting, and other
ancillary processes be managed, in order to deliver on the value proposition efficiently
and effectively
Funding arrangement
What is the acceptable income-to-expense structure and should the unit be for-profit or
nonprofit
Miller and Schiffman (2006) found universities typically create online learning initiatives for one
of two reasons:
1. To extend access to students
2. To improve the quality of teaching
In other words, there are two basic value propositions for online learning: access or quality.
There appears to be a correlation between the online learning value proposition and business
model employed, as illustrated in table. 1 (Miller & Schiffman, 2006; Vignare, Geith, &
Schiffman, 2006).
Table 1. Business Model Based on Value Proposition (Miller & Schiffman, 2006)
Value Proposition
Business Model
Access
Autonomous online learning unit
—or—
Continuing Education unit
Quality
Integrated unit
RIT’s online learning strategy is a blend of these two value propositions, with objectives related
to access and quality.
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Final
An autonomous, or auxiliary, unit in higher education is defined as one that operates outside of
the policies, procedures, and administration of the rest of the university. Common examples of
auxiliary units are residence halls, food services, and campus bookstores. When an auxiliary
model is used for online learning, online courses and programs are developed and delivered
within the auxiliary unit. University functions such as student recruitment and registration,
services such as advising, and technical support may be provided by the auxiliary unit, or
continue to be provided at the university level. Typically, the funding arrangement (described
below) dictates whether these functions and services are the responsibility of the auxiliary unit
(most often in for-profit arrangement) or the university (most common in the overhead funded
arrangement).
An integrated unit for online learning is one that operates within the same policies, procedures,
and administration of the rest of the university. Online courses and programs are developed
and delivered using the same resources as classroom-based courses and programs.
Funding arrangement
Either type of unit may use one of three funding arrangements:
1. Self-funded, recovering all of their own costs by sharing in tuition and fee revenues
2. Overhead-funded, supported by the university
3. For-profit, recovering all of their own costs by receiving all tuition and fees, and
returning excess revenue to the university
A 2006 survey conducted by Vignare, Geith, and Schiffman asked a variety of colleges and
universities to identify the business model and funding arrangement that best described their
online learning initiative. Table 2 presents the models identified by the 128 respondents.
Table 2. Online Learning Business Models (Vignare, et al., 2006, p. 57)
Business model
%
#
Integrated unit with overhead-funding
33.6
43
Integrated unit that is self-funded
22.7
29
Auxiliary unit that is self-funded
19.5
25
Auxiliary unit that is overhead-funded
7
9
Auxiliary unit that is for-profit
.8
1
16.4
21
100
128
Other
Total Respondents
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As table 2 illustrates, the least common online learning business model/funding arrangement is
an auxiliary unit that is expected to generate a profit. According to Miller and Schiffman (2006,
p. 16), the for-profit business model for online learning has “fallen in disfavor in most of the
literature” and the establishment of a for-profit unit within a nonprofit university is “perhaps
the model with the highest risk for long-term success in U.S. online learning.”
Among the reasons for their failures are (Miller & Schiffman, 2006):
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After the initial opportunity was addressed, the institution did not find additional
avenues for growth
The intended market did not materialize
The challenges inherent in bridging the for-profit and nonprofit sides of the university,
such as intellectual property issues and student enrollment management, were
insurmountable
Rodgers (2005, as cited in Edmonds, 2009) points out that uniting a for-profit model for online
learning with the nonprofit culture of higher education requires abandoning existing norms and
procedures, which leads to conflict and tension. Rodgers hypothesizes that since for-profit
entities and institutes of higher education have different value propositions—meeting
customer demands in a profitable manner, and teaching and learning respectively—merging
the two is fraught with pitfalls.
Edmonds (2009) provides a comparison of nonprofit and for-profit institutions of higher
education, outlined in table 3, which demonstrates the conflicting cultures and norms between
the two.
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Final
Table 3. Nonprofit and For-profit Comparison (Edmonds, 2009)
Characteristic
Main purpose
Teaching and learning model
Economic model
Faculty role
Nonprofit
For-profit
Serve public interest through
education, cultural and
community contributions,
research and innovation
Target markets with profitable
educational products
Lecture- and professor-centered
with curriculum development at
the discretion of professors
Self-directed learning, team
work, practical application, and
standardized, centrally-designed
curriculum
Costs from operations closely
matched to revenue (tuition,
investment earnings and
donation)
Creating economies of scale for
a mass population, adapting to
market demands and
competition, while controlling
costs and generating profit
Full-time, tenure-seeking, with a
divided focus on curriculum
development, teaching, research
and scholarship
Part-time, industry experts, that
focus only on teaching
Integrated versus auxiliary units
Some auxiliary online learning business units that were once successful ultimately failed. Others
that experienced failure have now recovered. For example, NYU Online, UMUC (University of
Maryland University College) Online, Temple University's Virtual Temple (Carlson & Carnevale,
2001, as cited in Anderson, 2004), and the University of Illinois's Global Campus all experienced
significant losses and were either abandoned or significantly reconfigured (Carter, 2009).
A recent success story for an auxiliary online business unit can be found at Southern New
Hampshire University. The university established an autonomous unit for online learning that
caters to older students and with classes taught mainly by adjuncts, who receive fully
developed courses complete with readings, assignments, and assessments. Residential students
are given last priority in terms of registration for online courses. While faculty do have a voice
in the unit, they have no power or authority. The online unit’s admissions function operates
with a sense of urgency, with most applicants receiving a follow-up phone call within minutes
of making an inquiry and a financial aid estimate within 24 hours. (Parry, 2011).
Southern New Hampshire University’s auxiliary unit is run by Stephen Hodownes, the former
CEO of Embanet (a company that helps start online education programs including Saunders
College of Business EMBA) who is a marketing expert. The unit’s staff is comprised of primarily
for-profit veterans. The qualifications of the staff may be a significant factor in the unit’s
success. Many experts agree that a potential weakness in establishing auxiliary online units that
are for-profit or cost-recovery is that most university administrators are not proficient in the
competencies required to operate in these funding models (Edmonds, 2009).
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Final
Other noteworthy auxiliary units for online learning include:
1. Penn State’s World Campus
Penn State's World Campus was launched in 1998 to provide a single portal for online
programs to off-campus students. The World Campus offers the full complement of
courses for 30 online certificate and degree programs and provides a centralized
coordinating function for all of Penn State's distance education offerings. A separate
office supports online learning within the residential instruction environment. World
Campus also serves as the course and program delivery unit. Students apply through the
World Campus, but they matriculate with the offering college and receive their degrees
from the colleges.
Because the World Campus has broad responsibility for online distance education, it has
a staff of more than 90 to provide financial, marketing, technical, and instructional
design support services. Under its policy of measured strategic growth, the World
Campus identifies programs for prospective development and makes a request to the
appropriate college to participate in program development. For students, World
Campus provides online registration, links to library resources, technical support, and
offers first-time enrollees an online orientation course called World Campus 101. In
addition to technical and instructional design support and training, faculty can also take
advantage of Faculty Development 101.
The World Campus operates in a cost-recovery arrangement and is required to recover
all of its development and operating costs. The World Campus's established programs
delivered by satellite, video, and other media technologies currently generate net
revenues. Support for online development and delivery comes from these revenues,
tuition, grant support (including the Sloan Foundation), and some university investment.
Depending on academic department practices and policies, faculty members developing
or instructing World Campus online courses may do so either as part of normal course
load, with the World Campus reimbursing the college, or for extra compensation. Once
a course reaches the break-even point, net revenues are shared with the sponsoring
college (Lozier, Oblinger, & Choa, 2002, pgs. 5, 6).
2. University of Maryland University College (UMUC)
UMUC was founded in 1947 and focuses on the adult post-secondary and U.S. military
markets. UMUC provides full admissions and enrollment services to its distance learning
students and currently offers 32 baccalaureate and master’s degree programs and 50
certificate programs. The unit sets intellectual property policy, and provides technology
assessment, multimedia services, and pedagogical and instructional applications.
Historically, UMUC receives limited state appropriations. The university charges the
same tuition for online courses as it does for traditional classroom instruction (Lozier, et
al., 2002, pg. 7, 8).
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3. Rio Salado
Rio Salado was created in 1978 by the Maricopa County Community College District in
Arizona, which is the largest community college district in the nation. Of Maricopa’s 10
colleges, Rio Salado is the only one with no traditional campus. Its charter specifies an
emphasis on “distance delivery”; in 1996 it became a pioneer in Internet-based
education (Christensen & Eyring, 2011).
Rio Salado serves non-traditional or working adult student populations and has a
“virtual campus” footprint (e.g., few if any physical classrooms, labs, libraries, etc.). Rio
Salado’s emphasis on centrally developed courses and part-time faculty, combined with
“virtual campuses,” keeps costs relatively low. In 2010, tuition at Rio Salado ranged from
$76 per credit hour for in-county students to $300 for out-of-county students (Rio
Salado College, 2010).
4. Charter Oak State College
Charter Oak State College was founded in 1973 by the Connecticut General Assembly to
serve “those individuals who cannot or do not choose to complete a college degree
program through conventional means, often because of family, job, or financial
considerations.” In 1999 it began offering Internet-based distance courses; today it
offers only online courses (Charter Oak State College 2010).
At Charter Oak, Core Consulting Faculty (CCF) are appointed from the full-time faculty of
public and non-profit institutions of higher education in Connecticut. The CCF’s role is to
establish degree requirements and review programs, learning outcomes, and adjunct
faculty performance (Charter Oak State College, 2010).
Rio Salado and Charter Oak are among the fastest growing online-focused institutions of
higher education in the nation today.
Many public and some private universities have approached the expansion of online learning by
putting resources into virtual university consortia (VUC). This is most common when online
learning strategies include economic development and improved access for students (Twigg,
2003). While a VUC is not one of the models RIT is currently exploring, the lessons learned from
the most successful VUCs to-date—CCCOnline, the Tennessee Board of Regents Online Degree
Programs (RODP), and UMassOnline—may prove valuable in the design of RIT’s model for
online learning.
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Final
1. CCCOnline
CCCOnline, a VUC in Colorado, allows multiple institutions to offer common online
courses. Courses and programs are not developed collaboratively. Instead, CCCOnline
centrally manages and staffs all course and program design and development.
CCCOnline hires faculty to build courses and programs, trains that faculty, and provides
quality assurance. Courses are built only once. Faculty are independent adjuncts drawn
from both the Colorado community colleges (50 percent) and the broader higher
education community (50 percent). At the time of one report (2003), adjuncts were paid
$1,650 per course. When faculty join CCCOnline, they become adjuncts at all of the
institutions. Faculty participate in a very rigorous training program; they must attend
two workshops per term even if they have been teaching for a while. CCCOnline does
ongoing faculty reviews against established standards—such as response time to
students—and those who do not meet standards are terminated. In 2003, CCCOnline
invoiced colleges for services at $94 per credit, and the colleges netted the remaining
$34 per credit. As of 2003, CCCOnline’s revenues exceeded expenditures; surpluses
were reinvested in ongoing course development and in higher returns to the colleges
(Twigg, 2003, p. 12)
2. Tennessee Board of Regents Online Degree Programs (RODP)
RODP was launched with initial funding of $1.2 million from assessing existing
campuses. There was no requirement for campuses to participate in the RODP. Capital
sources are repaid from enrollment revenues. In 2003, RODP’s annual operating costs
were $1.2 million, which were also recovered from enrollment revenues. RODP students
pay an online course fee, which equals campus tuition plus 40 percent. The 40 percent
fee is comparable in cost to fees the campuses typically add to tuition for things like
student clubs and athletic facilities. If RODP students desire to attend campus activities,
they can pay an additional student activity fee. The individual colleges at which students
are registered collect the tuition (Twigg, 2003, p. 15)
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3. UMassOnline
The University of Massachusetts launched UMassOnline, a VUC, 2001. UMassOnline has
focused on serving the community (economic development) and on generating revenue
for the main campus. Their online academic programs are fully accredited, with degrees
granted by the sponsoring campus. As of fall 2010, UMassOnline offered 93 online and
blended programs and 1,500 courses. UMassOnline is comprised of three units:
Academic Enterprise (including instruction, course development, hiring faculty,
admissions/advisement, and library services); Campus Services, which operates under
Continuing Ed/Distance Learning (registration, student services, faculty support; and
UMassOnline (technology platform, staff support and training, marketing, program
development and campus support).
The UMassOnline funding model is somewhat complex. For the University of
Massachusetts campuses, there is a flat 10 percent assessment on gross revenue, less
refunds and waivers for fully online course offerings, and a five percent assessment on
blended offerings. For hosted partner colleges, of which there are 10, UMassOnline
invoices are based on a cost-plus model in which they charge for services (Wilson,
2004).
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Conclusions
At the same time that online learning has developed into a potentially disruptive innovation to
higher education, government and society are demanding that institutions of higher education
prepare students for the unique needs of a knowledge-based, technology-enhanced, global
economy (Edmonds, 2009). For these reasons and more, the future of teaching and learning in
higher education is likely to be dramatically different in the future than it is today. Universities
on the cutting edge of change are likely to flourish. RIT is well positioned to address a number
of trends, like the potentially disruptive innovation of online learning. By clearly defining our
online learning value proposition (online learning strategy), determining the resources required
to deliver on that value proposition, and adopting a business model and funding arrangement
that ensure all involved collaborate to deliver on the value proposition efficiently and
effectively, RIT will continue to be a recognized leader in online learning.
The resistance to change, inherent in any organization faced with disruptive innovation, must
be met with an unwavering leadership commitment to an innovative solution. A new business
model, which will support change rather than co-op it, is necessary.
Recommendations
1. Transform the Teaching & Learning Services (TLS) department, housed within The Wallace
Center, into an auxiliary online learning unit with expanded responsibilities and authority
To a certain degree, RIT already has the foundation for an auxiliary unit for online learning,
namely the Teaching & Learning Services (TLS) department. The staff in this department
currently provide support for:
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Design and delivery of online courses through faculty training and development, and
individual faculty consultations
Technology use through faculty training and individual consultations, and a help-desk
operation
Research and analysis related to trends in online learning and current practices at RIT
With some changes, this unit could become an autonomous center for online learning at RIT.
One significant change would involve expanding the services provided by TLS to include:
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Online course and program design
The management of delivery of online courses and programs
Student recruitment and support
Marketing
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Evidence of the value of this change can be found in a study of the organizational models for
online learning at six universities, from which researchers concluded that regardless of
organizational model for online learning, universities should provide centralized services to
support the development and delivery of online learning courses and programs (Lozier, et al.,
2002); and from conclusions Twigg (2003, p. 18) drew from her study of VUCs that the common
element that has led to the success of any VUC is that rather than replicating the traditional
delivery model where “the vast majority of courses are developed and delivered as ‘one-offs’
by individual professors,” the VUCs online courses are designed centrally and are then taught
by multiple instructors. “Designing online courses via the build-it-once, use-it-often approach
dramatically reduces the costs of development for online instruction, especially when the
instructors are adjunct faculty.”
Transforming TLS into RIT’s auxiliary online learning unit would follow advice from Christensen
et al. (2011) to leverage existing fixed assets to create a cost advantage over lower cost online
learning providers. It would also lead to more comprehensive and well-defined online courses
and programs, centralized marketing for online, and consistency for online offerings, student
support, and instructional design. This unit could potentially serve to manage other related
functions for the university such as intersession and summer programming.
2. Adopt an overhead funding arrangement for the auxiliary online learning unit
It is clear from the literature that a for-profit arrangement is the most vulnerable to failure
(Miller & Schiffman, 2006). A self-funded arrangement, while more common (Vignare, et al.,
2006), does necessitate significant change to the university’s business model. A self-funded
arrangement requires returning revenue to the auxiliary unit and as RIT’s colleges do not
currently receive tuition revenue, there may be strong resistance to this funding arrangement
for the auxiliary model.
3. Utilize existing university functions and services to minimize cost
In an effort to minimize initial costs for the auxiliary online learning unit, it is recommended
that functions such as admissions, registration and technology infrastructure, and services such
as advising continue to be provided at the university level. Degrees will be conferred by the
colleges.
The auxiliary unit will:
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
Determine which courses and program should be offered in an online format
Design courses and develop course materials
Provide training and support to university advisors and admissions counselors to ensure
an extraordinary online learning experience
Hire and train (adjunct) faculty
Assess online faculty performance
Provide technical support to faculty, students, and advisors
Market the online courses and programs
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Associated costs
The costs related to online learning can be grouped in three categories: development, delivery
and administration Meyer (2005).
1. Development
The Development of online learning courses and programs is at a much higher cost than
traditional course development (Bramble & Panda, 2008). Development costs may include
(Meyer, 2005, p. 21):





Materials
Staffing
Equipment for staff
Copyright clearance
Materials production (including staff, supplies and consumables) and annual revision
(including staff and expenses)
 Developmental testing of the course (including staff and expenses)
 Media
2. Delivery
Delivery costs may include (Rumble, 2001; Meyer 2005):
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
Materials delivery (mailing or posting materials to the user)
Equipment (including hardware, networks, computers, printers, software)
Expenses (Internet Service Provider access, insurance on equipment, equipment repair,
calls to help desk)
Faculty and staff costs (for instruction, helpdesk, technical support)
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3. Administration
The costs related to online course and program administration may include (Rumble, 2001;
Meyer, 2005):
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High-level decision making (time for consultants, studies, etc.)
Institutional evaluation
Web site development (staffing, hardware, software, repair, maintenance,
implementation)
Course management system (acquisition, fees, upgrade costs, network server, support
staff, Internet access)
Capital (buildings, utilities, insurance repairs, maintenance, security, servers, software,
staff, furniture, training); replacement/maintenance of equipment
Technical support staff
Marketing
The share of the cost of financial, purchasing, and management systems used by the
institution
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References
Allen, I. E. & Seaman, J. (2011). Going the distance: Online education in the Unites States.
Babson Survey Research Group. Retrieved from
http://sloanconsortium.org/publications/survey/going_distance_2011
Anderson, T. & Elloumi, F. (2004). Value chain analysis: A strategic approach to online learning.
Theory and Practice of Online Learning. Abathasca, Canada: AU Press.
Brainard, J. & Richards, A. (2010, November 5). Online learning: By the numbers. The Chronicle
of Higher Education. pp. B28-29.
Bramble, W., & Panda, S. (2008). Economics of Distance and Online Learning: Theory, Practice
and Research. Routledge: Florence, KY.
Carter, D. (2009). How to create a successful virtual campus. eSchool News. Retrieved from
http://www.umassonline.net/news/1996.html
Charter Oak State College (2010). NEASC progress report spring 2010. Retrieved from
http://www.charteroak.edu/AboutUs/Public.cfm
Christensen, C.M., and Eyring, H.J. (2011). Innovation university: Changing the DNA of higher
education from the inside out. Jossey-Bass: San Francisco, CA.
Christensen, C.M., Horn, M.B., Caldera, L., & Soares, L. (2011). Disrupting college. Center for
American Progress and Innosight Institute. Retrieved from
http://www.americanprogress.org/issues/2011/02/disrupting_college.html
Edmonds, K. (2009). For-profit models in traditional postsecondary distance education: The
possible gains and losses. International Journal of Knowledge, Culture & Change
Management. (8)10. pp. 1-10.
Miller, G.E. & Schiffman, S. (2006). ALN business models and the transformation of higher
education. (2006). Journal of Asynchronous Learning Networks. 10(2), p. 15. Retrieved
June from
http://www.duc.auburn.edu/outreach/dl/pdfs/ALN_Business_Models_and_the_Transfor
mation_of_Higher_Ed.pdf
Meyer, K. (2005). Planning for cost efficiencies in online learning. Planning Higher Education.
33(3), p. 19-30.
Lozier, G., Oblinger, D., & Choa, M. (2002). Organizational models for delivering distance
learning. ECAR Research Bulletin, 2002(2).
Parry, M. (2011, August 28). Online venture energizes vulnerable college. The Chronicle of
Higher Education. Retrieved from http://chronicle.com/article/How-Big-Can-E-LearningGet-At/128809/
Rio Salado College (2010). 2009-2010 report. Retrieved from
http://www.riosalado.edu/about/research-planning/Documents/annual-report-2011.pdf
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Rumble, G. (2001). The costs and costing of networked learning. Journal of Asynchronous
Learning Networks, 5(2), p. 75–96.
Twigg, C. A. (2003). Expanding access to learning. The role of virtual universities. Center for
Academic Transformation. Troy: NY.
Vignare, K., Geith C., & Schiffman, S. (2006) Business models for online learning: An exploratory
survey. Journal of Asynchronous Learning Networks 10(2), pp. 53-67.
Wilson, J. (2004). The state of New England online. University of Massachusetts. The New
England Board of Higher Education. Woodstock, VT: November 5, 2004.Retrieved from,
http://www.jackmwilson.com/
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