9 Lessons Universities Can Learn from Tesla and Wall Street: Part 1

Strategy
9 Lessons Universities Can Learn from Tesla and Wall Street: Part 1
By Arnie
October 2, 2020

In this three-part article, I discuss several megatrends, including the shift in value from hardware to software, and the growing importance of data. Furthermore, I discuss what we can learn from how these megatrends impacted other industries, as well as how they will affect the higher education industry. 

Identifying and understanding megatrends, as well as the opportunities and perils they present to fundraising, are the keys to a university surviving and thriving in this challenging environment. 

Drawing upon thirty years of experience with Silicon Valley, technology, and Wall Street, I believe that universities need to shift from incremental, tactical responses to meaningful, strategic change. 

How Complacency Almost Killed IBM

Up until the 1980s, it was generally accepted that computer hardware was much more valuable than software. That’s why IBM famously allowed Microsoft to retain the rights to the MS-DOS operating system. However, that software enabled Microsoft to eventually supplant IBM as the most successful technology company in the world.

IBM ignored the megatrends and resisted change. Although its future had once seemed bright and guaranteed, sticking to the ‘tried and true’ led to an existential crisis for IBM in the 1990s. 

Embracing the future and making real change is a safer course of action than driving down the highway and looking through the rear-view mirror.

Megatrend: Past success creates blindspots.

Lesson #1: Megatrends are like waves. Learn how to spot megatrends so that you can ride them. Don’t wait until the wave crashes over you.

Real Change is Needed for Real Results

In a virtual poll conducted by the APRA, many university fundraisers said they were “managing” the impact of COVID-19. In a letter to Congress, the American Council on Education estimated that higher education institutions will suffer a loss of over $120 billion due to the pandemic. 

Will “managing” really suffice to mitigate the consequences of the pandemic? 

My fear is that some colleges may be overly optimistic about the long-term ramifications of the pandemic. In addition to the financial impact, there are also signs that the higher-ed business model itself may be forced to change. 

Future competition for the declining number of high school students may come from corporations instead of other colleges. Companies such as Google, Amazon and Microsoft have already begun to disintermediate colleges by offering cheaper certification courses that will be treated the same as a four-year college degree. If a purpose of a college degree is to obtain employment at one of the aforementioned companies, why wouldn’t a prospective student choose to get certified directly by them instead of taking on a student loan to attend college for four years?

Furthermore, if universities are forced to respond with hybrid learning models, can they really expect to charge the same for tuition? 

The strategies, processes, and software systems used by alumni relations and development are the result of decisions based on pre-pandemic assumptions. Clearly, many of those assumptions are no longer valid. Therefore, expecting that they will deliver the same results in the post-pandemic environment is a high-risk gamble. 

“Managing” can be a form of denial to avoid making material changes to the status quo. There are many examples in the for-profit world of companies who ignored the danger until it was too late. Blockbuster, Kodak and Toys "R" Us were all content to ‘manage’ their businesses without adjusting to a rapidly changing world. 

To avoid a similar fate, universities need to decide if the current situation is a temporary blip, or if we are experiencing something far more profound and longer-lasting. If it is the latter, then ‘managing’ the situation will only delay the inevitable diminishment of services — or worse. 

Maintaining the status quo is a risky strategy.

‘Tinkering around the edges’ is equally risky, as it gives the false appearance of change but doesn’t really address the core challenges. Instead, I believe universities need to use this crisis as an opportunity to adopt new technologies and approaches that are designed to match the current, and likely future, reality. 

Megatrend: Just like the frog in boiling water, people and organizations often ignore the danger they’re in until it’s too late.

Lesson #2: When the assumptions in your world drastically change, you have to take bold, not incremental, action. It’s important to distinguish between activity that has the appearance of ‘doing something,’ but in reality only deflects attention away from making the tough strategic changes that are really needed.

Knowing What to Change

Another example of the shift in value from hardware to software can be seen in the auto industry. After more than seven decades, the world’s largest automaker, General Motors, was dethroned in 2009 by Toyota, which had introduced more efficient manufacturing systems

Yet, Toyota’s manufacturing success wasn’t enough to keep it ahead of the times. Today, the most valuable automobile company in the world is Tesla, a company founded only in 2003.  It is not a coincidence that the ‘car of the future’ is manufactured in Silicon Valley, a center of innovation — and software. Some of Tesla’s success can be attributed to the fact that it is actually a data company (software) disguised as an automobile manufacturer (hardware).

Historically, car makers changed their vehicle designs roughly every 5 years. Tesla hasn’t changed the design of its Model S since its creation in 2012. And yet, it managed to become the top selling electric car in the world for multiple years in a row. What Tesla does change, frequently, is its cars’ software. Tesla owners (such as myself) receive software updates several times a year. Some of these updates relate to entertainment features, such as a Caraoke option for live-music lovers, but others also improve the performance of the vehicle. Tesla is the first vehicle that actually retains its value after it is purchased and driven off the lot. All through software.

Tesla’s mission is to accelerate the world's transition to sustainable energy. To achieve this, it has chosen to be innovative rather than bound by past business models — even if those models were successful in the past. Traditional automakers focus on one-time revenue gain by selling cars (hardware). Tesla, on the other hand, sells both hardware (cars) and software subscriptions, ranging from premium connectivity to self-driving capability. 

Tesla provides an excellent lesson in the value of not maintaining the status quo. It understood the megatrends and forged its own path forward, unshackled from the group-think of existing automakers.

By diverging from the status quo, Tesla strengthened its ability to execute its mission.

Megatrend: Group-think, denial and inertia are the enemies of real change.

Lesson #3: A gift officer’s ability to develop a long-term relationship with a prospect is their ‘software.’ Reimagining alumni engagement so it provides them with actionable cultivation insights maximizes their value.

Read Part 2 to discover even more lessons universities can learn from other megatrends.

Disclaimer: I own Tesla stock. I bought it several years ago when it was priced at $28 per share (post-split equivalent). At the time of writing, its stock price is $800. (Prices have been included to make it clear that this article is not based on hindsight bias.) Transformational companies often experience extreme volatility in their stock price. So, Tesla’s share price could be dramatically lower at the time of reading. Nonetheless, I stand by my thesis that, among other reasons, Tesla’s data-driven approach, which values software over hardware, will result in their long-term success. 

I applied what I learned from studying trends in other industries (financial software) and saw how it would play out with Tesla. I believe the lessons learned from studying the history of Tesla and Wall Street can be applied to the future of higher education as well. Universities that do this will be primed not just to survive, but thrive.

9 Lessons Universities Can Learn From Tesla and Wall Street