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Apollo Group University Of Phoenix Case Study

Case 3: The Apollo Group, Inc. [University of
Richard B. Robinson 1 A 55-year-old college professor at San Jose State University with a PhD from Cambridge University and previous teaching jobs at Maryland,
Ohio State, and Northern Illinois, John Sperling was a surprise entrepreneur
when he started the Apollo Group, parent company of the University of
Phoenix, in 1976. Ambitious, his goal was to revolutionize conventional
higher education. Most people would say that Sperling, recently
celebrating his 91st birthday, has done just that.
2 Rather than catering to 18- to 22-year-olds looking to find themselves, Sperling focused on the then-neglected market of working
adults. And he recruited working professionals as teachers, rather than
tenured professors. UOP (on-campus and online) has more than 33,000
faculty members with less than 5 percent being full-time. Most radical of
all, while nearly all other universities are nonprofits, Sperling ran his
university to make money. Those ideas sparked overwhelming resistance
from the education establishment, which branded UOP a “diploma mill.”
The result? “We faced failure every day for the first 10 years,” said
founder Sperling, who turned 91 in 2012.
3 From an IPO adjusted price of $0.76 to a mid-2005 high of $98, Apollo’s stock reflected a company BusinessWeek considered among the
top 50 performing companies on Wall Street. The Phoenix-based company,
whose day-to-day operations were still generating average annual revenue
growth exceeding 30 percent over that time, saw its revenues reach $5
billion in 2010 with net income exceeding $550 million. It has also joined
the S&P 500.
4 Tuition at Apollo averages only $18,000 a year, 60 percent of what a
typical private college charges. A key factor, says Sperling, is that
universities for the young require student unions, sports teams, student
societies, and so on. The average age of a UOP student is 35, so UOP
doesn’t have those expenses. It also saves by holding classes in leased
office spaces around the country, and online, By 2010, over 75 percent of
UOP students studied at University of Phoenix Online. 5 By 2010, the UOP had become the dominant player in the online
education market that still has lots of potential for growth. The bricks-andmortar University of Phoenix was one of the first institutions to identify
and serve the burgeoning market for educating working adults. In the late
1980s, long before the Web debuted, the school began to experiment with
offering its classes online. It got off to a slow start, “and we lost money for
a number of years,” recalled Brian Mueller, Apollo’s former president.
6 As a result of this head start, however, UOP’s online option was ready
to capitalize on an online-education market that began exploding in the
mid-1990s. Today, it is estimated that over 10 percent of the U.S. students
earning a degree via the Net are enrolled through the UOP’s online option.
UOP’s online option also garners an outsize share of the industry’s
revenues—about one-third of the total. That’s because as the market
leader, it can charge higher tuition than most rivals. Undergraduates pay a
little more than $18,000 a year at UOP, while students seeking a master’s
degree pay nearly $25,000. “They’re by far the giant in this industry,”
says Eduventure market analyst Sean Gallagher.
Source: © 2012. This case was developed based on publicly available
information from the Apollo Group, Inc., the University of Phoenix,
interviews with UOP students and professors, and selected reports as
cited. 7 Online education is rapidly growing, but it is still just getting started.
“There are 70 million working adults in this country who don’t have a
college degree,” says Gallagher. Increasingly, they realize that they need a
degree to get ahead. But because they often have a family as well as a
job, studying online is the most convenient solution. Howard Block, an
analyst at Banc of America Securities, predicts “dramatic enrollment
growth” for UOP’s online option. He expects that half of the students in
postsecondary education will one day make at least some use of the
Internet to earn their degrees. GLOBAL OUTREACH 8 UOP began to seriously tap the international market with its online option in 2005, initially “bringing in about 500 students a month,” said
Mueller. “But that’s just the tip of the iceberg.” Though the UOP started
offering online classes only in English, it has begun to offer courses in
Spanish and plans to introduce Mandarin soon as well. Ironically, UOP has
done all this with plain-vanilla technology. While other companies charged
into online education with dazzling digital content, UOP has historically
offered primarily a text-heavy format that can easily be accessed with dialup modems.
9 This might sound like a recipe for failure. But UOP realized that interaction with humans—the professor and other students in the class—
was far more important to success than interaction with the digital
content. Thus, UOP keeps its classes small, averaging just 12 students.
And to combat the Achilles heel of distance education—a high dropout rate
—it offers its students plenty of hand-holding, including round-the-clock
tech support. The result: 65 percent of its students go on to graduate.
10 Some see plain technology as a potential negative for the virtual
college. “At some point, UOP online will need to upgrade the sophistication
of its platform,” warned Trace Urdan, an analyst with ThinkEquity Partners,
a boutique investment bank. That will require more spending on research
and development and information technology, he warns, which could
crimp margins. Still, any extra spending could be easily offset if UOP
bumped up its class size to 15 students, argueed Block. Even with today’s
small classes, operating profit margins now top 20 percent. As if listening
to them, the UOP now has an excellent, visual explanation of how this type
of multifaceted online educational approach works.1 THE ONLINE TREND 11 The dot-com bubble may have burst in the world of commerce, but
the promise of harnessing the Internet for paradigm-changing growth—
and even profits—still thrives in the halls of academia.
12 A decade after the dot-com fizzle began, e-learning has emerged
from the wreckage as one of the Internet’s most useful applications.
Nearly 90 percent of the 4,000 major colleges and universities in the
United States now offer classes over the Internet or use the Web to enhance campus classes, according to market researcher International
Data Corp. About 7 million students took online classes from U.S. highered institutions in 2010 according to John G. Flores, head of the U.S.
Distance Learning Assn., a nonprofit trade group outside Boston. And it’s
not just a U.S. phenomenon: students from developing countries are
jumping online, too.
13 These classes continue to open new horizons for the fastest- growing segment of higher education: working adults, who often find it
difficult to juggle conventional classes with jobs and families. Adults over
25 now represent nearly half of higher-ed students; most are employed
and want more education to advance their careers.
14 E-learning is an influence in the traditional college class as well.
Online classes won’t replace the college experience for most 18- to 24year-olds. But from the Massachusetts Institute of Technology to Wake
Forest University in North Carolina, colleges are using the Web in oncampus classes to augment textbooks and boost communication. And
students, far more technology savvy than many of their professors or
administrators, are using Web-based tools, social media, and many other
approaches to morph Web-based capabilities into their academic
experience with or without their university following along, or even
approving. MASS MARKET? 15 Quality is a problem, which is a key reason why many online
students drop out. That will force a further shakeout, eliminating mediocre
players. Many colleges grapple with such issues as how much time their
faculty should devote to e-teaching. And long-established rules make it
difficult for online students to get financial aid. Even as these problems are
resolved, “online learning will never be as good as face-to-face
instruction,” argues Andy DiPaolo, director of the Stanford Center for
Professional Development, which offers online graduate classes to
16 Ultimately, the greatest e-learning market may lie in the developing
world, where the population of college-age students is exploding. Just as
cell phones leapfrogged land-based telephones in many developing countries, so may e-learning help to educate the masses in countries that
lack the colleges to meet demand—and can’t afford to build them. COST-EFFECTIVE 17 E-learning is a good fit with the military, where frequent transfers complicate pursuing a degree. The U.S. Army awarded PWC Consulting a
$453 million, five-year contract to create an electronic university that
allows soldiers to be anywhere and study at Kansas State University or any
of the 24 colleges involved in the program.
18 eArmyU already has changed the perspective of soldiers like Sergeant Jeremy Dellinger, 22, who had been planning to leave the Army
to go back to school when his basic enlistment ends. Then he enrolled in
eArmyU to earn his bachelor’s degree from Troy State University in
Alabama. “Now I can get my degree and still do the work I love” as a
supply sergeant, says the Fort Benning (Ga.)-based soldier. Like Dellinger,
about 15 percent of those who have signed up so far have reenlisted or
extended their commitment. By cutting turnover, “eArmyU could almost
pay for itself,” says program director Lee Harvey, since it costs nearly
$70,000 to train green recruits.
19 Corporations, too, see e-learning as a cost-effective way to get
better-educated employees. Indeed, corporate spending on e-learning is
expected to more than quadruple by 2015, to $35 billion, estimates IDC.
At IBM, some 500,000 employees received education or training online last
year, and 75 percent of the company’s Basic Blue class for new managers
is online. The move cut IBM’s training bill by $750 million last year,
because online classes don’t require travel. CAUTIOUS ELITES 20 Phoenix Online aside, the big e-learning winners so far are the
traditional nonprofit universities. They initially captured nearly 95 percent
of online enrollments, figures A. Frank Mayadas, head of e-learning grants
at the Alfred P. Sloan Foundation. Most active are state and community
colleges that started with strong brand names, a faculty, and
accreditation, says Mayadas, as well as a tradition of extension programs. 21 By contrast, many elite universities have been far more cautious about diluting the value of their name. Harvard Business School believes it
would be impossible to replicate its classroom education online. “We will
never offer a Harvard MBA online,” vows professor W. Earl Sasser,
chairman of HBS Interactive, which instead develops e-learning programs
for companies. MIT faculty nixed teaching classes online, fearing “it would
detract from the residential experience,” says former faculty chair Steven
22 That didn’t stop MIT from embracing the Internet in a different way. Over the next five years, MIT plans to post lecture notes and reading
assignments for most of its 2,000 classes on the Web for free, calling the
effort “OpenClassWare.” Lerman says “it’s a service to the world,” but he
says it’s no substitute for actual teaching, so faculty aren’t worried about a
threat to classroom learning.
23 A few other top schools see profit-making opportunities. Since
1996, Duke University’s Fuqua School of Business has been offering MBAs
for working executives. In these blended programs, some 65 percent of
the work is done online and just 35 percent in classes held during required
residencies that consume 9 to 11 weeks over two years. Duke charges well
over $95,000 for these programs—vs. $75,000 for its traditional residential
MBA. Yet they have been so popular that by next year, “we’ll have more
students in nontraditional programs than the daytime program,” according
to Fuqua’s dean. The extra revenues are helping Fuqua to double its
faculty. The Adult Education Market 24 The adult education market is a significant and growing component
of the postsecondary education market, which is estimated by the U.S.
Department of Education to be a more than $450 billion industry.
According to the U.S. Department of Education, over 7 million, or 45
percent of all students enrolled in higher education programs are over the
age of 24. This number is projected to reach 6.7 million in 2011. The
market for adult education in the United States is expected to increase as
working adults seek additional education and training to update and improve their skills, to enhance their earnings potential, and to keep pace
with the rapidly expanding knowledge-based economy.
25 Many working adults are seeking accredited degree programs that provide flexibility to accommodate the fixed schedules and time
commitments associated with their professional and personal obligations.
President Obama, with the United States trying to gain traction coming out
of the “Great Recession,” said in his 2011 State of the Union address that
having no degree is really no longer an option: Many people watching
tonight can probably remember a time when finding a good job meant
showing up at a nearby factory or a business downtown. You didn’t always
need a degree, and your competition was pretty much limited to your
neighbors. If you worked hard, chances are you’d have a job for life, with a
decent paycheck, good benefits, and the occasional promotion. Maybe
you’d even have the pride of seeing your kids work at the same company.
That world has changed. And for many, the change has been painful. I’ve
seen it in the shuttered windows of once booming factories, and the
vacant storefronts of once busy Main Streets. I’ve heard it in the
frustrations of Americans who’ve seen their paychecks dwindle or their
jobs disappear—proud men and women who feel like the rules have been
changed in the middle of the game.
26 His point: the rules of the game have changed. And, it would seem, the for-profit (industry participants prefer “proprietary”) collegiate
education sector has grown to reflect the new reality that access to a
higher education is no longer the province of the privileged few, but a
prerequisite to “owning our future” as individuals, or as he sees it, a
27 The need for more options in higher education to ensure more people gain the education necessary in a knowledge-based economy is
greater today than ever before. Demographics, and a changing global
economy, say it is a need that will only grow.
28 Dr. Bruce Chaloux, president of the Sloan Consortium, estimates
that there are more than 50 million working-age adults with some college
credit but no degree, or who have a high school diploma but never entered
college. Chaloux says that many of these adults would like to get their
college degrees, but only if they’re given practical “adult-friendly” alternatives to traditional, campus-based programs. He identified eight key
factors that influence an adult learner’s decision to attend college:2
• Convenient time and place for classes
• Flexible pacing for completing the program
• Ability to transfer credits
• Reputation of institution as being adult friendly
• Need the degree for current or future job
• Receive credit for life/work experiences
• Financial aid or employer assistance
• Child care 29 The Southern Regional Education Board in turn offers four guiding
principles it finds essential to meeting the needs of adult college
• Online or blended delivery
• Accelerated (or compressed) terms
• Adult-friendly policies
• Supportive credit transfer and prior learning assessment 30 Traditional colleges and universities have been slow to address the
unique requirements of working adult students. First John Sperling, and
now a global chorus of observers, has cited the following attributes of
traditional, not-proprietary education institutions:
• Traditional universities and colleges were designed to fulfill the
educational needs of conventional, full-time students aged 18 to 24,
who remain the primary focus of these universities and colleges.
• This focus has resulted in a capital-intensive teaching/learning
model in typical state and private colleges and universities that may be
characterized by: • a high percentage of full-time tenured faculty with doctoral degrees;
• fully configured library facilities and related full-time
staff; • dormitories, student unions, and other significant plant
assets to support the needs of younger students;
• often major investment in and commitment to
comprehensive sports programs; o • major administrative overhead for all the various university functions;
• politically-based funding;
• major resistance to change in any academic programs, even in the face of rapid global change across disciplines and
• an emphasis on research and the related staff and facilities; and
• faculty with PhDs and a research focus but limited
practical experience, even in key programs like business and other
working-related professions.
• The majority of accredited colleges and universities continue to provide the bulk of their educational programming from September to
mid-December and from mid-January to May. As a result, most full-time
faculty members only teach during that limited period of time.
• While this structure serves the needs of the full-time 18- to 24year-old student, it limits the educational opportunity for working adults
who must delay their education for up to five months during these
spring, summer, and winter breaks.
• Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for
working adult students because it requires the development of
additional administrative and enrollment infrastructure.
31 Traditional colleges and universities, born out of a centuries old academic model and tradition, have seen adult and continuing education
as awkward institutional fits for their mission—ancillary, less rigorous, yet
subtly necessary activities to serve their state or local population needs
but not rooted in the institution’s core academic tradition.
32 The UOP’s format since its inception has focused on working adult
students by providing an accredited collegiate education that enables
them to attend classes and complete class-work in a schedule and manner
more convenient to the constraints their work life imposes on their ability
to obtain a college or advanced degree. It may well be that proprietary
schools such as the UOP have proved more adaptable, if not more
creative, in responding to this 21st century, knowledge-economy adult
AND UNIVERSITY SECTOR 33 Undergraduate enrollments in the United States increased by more than a third to 17.6 million in the first decade of the 21st century, with the
most dramatic growth occurring at proprietary colleges. It was the fastest
decade of growth since the 1970s. Proprietary colleges enrolled 10 percent
of all undergraduates in 2010, up from 3 percent in 2000. Proprietary
enrollments increased fivefold to 1.2 million at four-year colleges, and
nearly doubled to 385,000 at two-year institutions, according to Jack
Buckley, Commissioner, National Center for Education Statistics.
The Chronicle of Higher Education says it is even higher—10 percent of all
students enrolled full-time in degree-granting institutions, and rising by an
average rate of 9 percent annually over the last 30 years. “We are seeing
a shift” that has “created additional opportunities … (and) brought to light
differences in how students pursue and pay for that education,” Buckley
said, adding that higher education “may look quite different” in 2020,
when enrollments are projected to reach 20 million.4
34 Thirty-five years ago, approximately 90,000 students attended proprietary colleges and universities. The sector was populated primarily
by small, privately owned businesses; “mom and pop” enterprises that
looked little like their traditional, four-year counterparts. The colleges—
most started primarily in east coast cities like New York, Philadelphia, and
Boston—taught skills for front-line jobs in high-demand fields, including
business, health care, cosmetology, food, and secretarial services. They
enrolled people that traditional highereducation tended to ignore: workingclass adults with children of their own who needed more skills to get
better-paying jobs but couldn’t take time out to attend a traditional
35 Proprietary institutions maintain much of the same mission today,
amid a market that has seen sweeping changes, now populated by over
3,000 proprietary institutions. Forty percent are owned by one of 13 large,
publicly traded companies. Half of those institutions offer associate,
bachelor, or professional degrees today, versus less than 10 percent
having done so in 1990. Over 90 percent of students at proprietary institutions are now enrolled in degree programs. Interestingly, only about
30 percent attend part-time. As the sector expands, it is attracting
students who might otherwise have attended community colleges or even
four-year institutions. “They are clearly a threat for both public and private
schools,” says Jim Scannell, president of the higher-education consulting
group Scannell & Kurz, “especially for adult students returning to get a
B.A. or going part time to get a master’s.”6
36 The NCES study entitled The Condition of Education 2011, offered
these summary observations:7
• Enrollments and the number of degrees conferred by
proprietary institutions increased faster than in the nonprofit sector,
which includes public and private universities. Proprietary institutions
awarded 5 percent of all bachelor’s degrees in 2008–2009, and 10
percent of all master’s degrees.
• For-profit colleges were more likely to enroll full-time students
25 and older, and to enroll students in distance education such as
online courses. Nearly one in five students (19 percent) attending
proprietary four-year colleges were enrolled entirely in distance
• The average price of attendance, including tuition, books, and
living costs, for students enrolled full-time for a full year was highest at
proprietary colleges after average grants were factored in. Students at
proprietary colleges paid $30,900 on average in 2007–2008, compared
with $26,600 at private, nonprofit colleges and $15,600 at public
• Proprietary institutions spent an average $2,659 on instruction
per student in 2008–2009, compared with $9,418 at public colleges and
$15,289 at private nonprofits. They spent more per student ($9,101)
than public institutions ($6,647) but less than privates ($14,118) on
student services and other types of support, including administrative
and marketing salaries.
• Among four-year colleges, retention and graduation rates were
lower at proprietary schools, which enroll about 1.2 million students
compared with their nonprofit counterparts, which enroll about 8.9
million students. o • Among two-year colleges, retention and graduation rates were higher at proprietary colleges, which enrolled 385,000 students, than at
public community colleges, where enrollments reached 7.1 million.
• Students at proprietary colleges were more likely to take out larger loans and to default on them. The average annual loan amount
for all students was $7,000; the average was $9,800 at four-year
proprietary institutions and $7,800 at two-year proprietary institutions.
37 Many small schools, particularly private liberal-arts colleges, are
seeing drops in enrollment. After initially trying tuition increases as a
solution, which has only driven students away in many cases, some of
these schools are attempting to make up tuition revenue byincreasing
their adult student enrollment. In so doing, they are competing directly
with proprietary colleges; and a recent trend has been for some of those
colleges to be acquired by larger proprietary education companies as a
way to enter certain geographic areas, or rebrand the small college, or
leverage its brand across multiple locations. And public colleges feel the
heat too. Students who have been rejected by budget-strapped public
colleges, and others who find the public university bureaucracy often too
much of a hassle to deal with, are being aggressively recruited by the
proprietary sector. It’s not clear whether this shift of students from public
institutions to proprietary universities will be permanent, industry analysts
say, but it continues to increase the size and legitimacy of the proprietary
38 Amazingly, even while facing co...

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It is not that education systems do not want to deliver skills to equip students with 21st Century skills; it’s that the systemic blocks make it extremely difficult. A high level of vision and tenacity is required. To handle high speed change takes different skills so in this program you’ll hear:

  • How they inserted accountability into interpersonal relationships internally
  • What impact being fully responsible had on learning and growth of leaders
  • What surfaces when you see people as more than their role
  • About Redflint: a partnership between big corporations, the university and an accelerator
  • About the ecosystem benefits for startups, big corps and entrepreneurs
  • Why MGM in Las Vegas signed on as a partner

Stephenie Gloden is the former Vice President, Enterprise Resource Management at Apollo Education Group and part of the partnership behind the RedFlint Experience Center, Sparked by University of Phoenix.

Innovative entrepreneur, intrapreneur and leader, Stephenie promotes a highly engaged culture focused on delivering value-driven service and solutions that meet customer needs. She applies lean startup principles, agile methodologies and self-management practices to driving collaboration in an interdisciplinary context. Fortunately, she’s not afraid to push the envelope – an essential trait in someone having to work around an entrenched systemic holding pattern.

Stephenie Gloden and Dawna Jones are on LinkedIn.

To learn more about RedFlint: CLICK HERE

Podcast link: CLICK HERE

To see a video from the Consortium for Service Innovation about using self-management at Apollo: CLICK HERE

Methodologies and Tools used:

  • Personal Commercial Missions
  • Informal Colleague Operating Agreements
  • Self-Managed Communication and Conflict Processes
  • Coaching and Mediation
  • Modeling and Developing Self-Managed Leadership Competencies


  • Successfully transformed the Contact Center/Shared Services Group from command-and-control to Organizational Self-Management
  • Provided a working model for change for the larger enterprise, parts of which are now studying the feasibility of transformation for their own groups
  • Created effective working interfaces with the surrounding hierarchical organization
  • Team drove the Organization Self-Management project implementation

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