The growing interest in distance and distributed learning in Virginia reflects that across the nation. The past several years have seen an explosion of activity in online delivery and tremendous interest in creating virtual colleges and universities. Several of the individuals with whom we spoke in Richmond expressed an interest (or anxiety) about where Virginia stands in relation to this activity. The following analysis of the successes and failures of each of these types of efforts underlies the consultants' recommendations. The goal is to have Virginia learn from what has gone before and, indeed, leap-frog over the efforts of other states.

To assess the significance of the numerous virtual university initiatives that seem to be appearing in every state, one must begin by cutting through the hype. A recent report, The Business of Borderless Education: UK Perspectives, notes:

Documenting current activity in borderless higher education is not easy. In a world of 'spin' it is in the interests of new providers to emphasise potential and to massage reality . . . [but] obtaining data on actual student enrollments is difficult.

Most four-year institutions that have focused on 18- to 22-year-old students continue to do so. Despite a growing interest in online learning among these institutions, the vast majority of teaching and learning activity remains limited to the classroom. Even though information technology and distance education are high on the agenda of every four-year institution—at least at the executive level—there is a wide gap between that interest and the development of serious, large-scale responses to the announced needs that are driving most virtual university efforts. First, despite an explosion in online activity, most of today's enrollments in online courses consists of current students who are engaged in an alternative option to classroom learning. Although providing such alternatives certainly improves each institution's quality of service to students, this is a long way from serving the burgeoning needs of the knowledge economy. Second, most online activity is confined to disparate courses rather than making up full degree or certificate programs. To be sure, a small number of institutions have done heroic work in this arena, but most four-year institutions are nowhere near offering the number of full programs or workplace-oriented courses that are required by the new economy. Third, almost all of the newly announced virtual efforts on traditional campuses are developing exceedingly slowly. Timing is generally set by the institution, not by the needs of the customer.

As distance-learning opportunities have exploded in the past five years, it is the academic area that has received both the most attention and the bulk of the financial resources. This is not surprising since students searching for learning opportunities at a distance want courses and degrees. However, there is a critical role for student and administrative support services for distant learners. Without appropriate support, distant learners find that their goal of learning from home or work faces hidden barriers that are merely frustrating in some cases and overwhelming obstacles to progress in others.

For a variety of reasons, most colleges and universities developing distance education structures or higher education systems creating virtual universities have stumbled over the provision of student services. It isn't that the functions that need to be performed are new (e.g., admission, registration, financial aid, academic advising, library and computer services etc.) but rather that the processes and strategies for providing them for a new category of learners must be different. The major problem isn't that the challenges cannot be effectively overcome but rather that the existing organizational structures on campuses and in higher education systems get in the way of responding effectively to the needs of a new category of learners (i.e., those studying at a distance).

Certainly a major reason is that the extensive range of services for students already in place on campus are almost always organized by function, such as admissions, financial aid, registration, and so forth. This de-centralized structure works well on campuses where students are physically present and can move from office to office as necessary. For the distance learner, however, de-centralized structures are difficult to understand and even more difficult to navigate. The ideal organizational structure for the distant learner is centralized "one-stop shopping."

Almost every state in the United States is engaged in some kind of virtual university consortial effort. In some cases, the consortium involves only public institutions: the State University of New York (SUNY) Learning Network, UMass Online, Georgia G.L.O.B.E., the Education Network of Maine, the University of Texas Telecampus, and the recently announced effort in Tennessee. In other states, the effort involves both public and private institutions: the Kentucky Virtual University (KYVU), the Michigan Virtual University, the Illinois Virtual Campus, and the Ohio Learning Network.

What is driving these efforts are the demands of the changing economy as this excerpt from the KYVU homepage exemplifies:

The mission of the KYVU is to be a student-centered, technology-based system for coordinating the delivery of postsecondary education that meets the needs of citizens and employers across the Commonwealth. . . . Consistent with the statewide strategic agenda for postsecondary education, the primary purposes of the KYVU are to:

• Enhance and expand educational access and increase educational attainment across Kentucky.
• Upgrade workforce skills and expand professional development through basic and continuing education.
• Increase collaboration and foster efficiency and effectiveness in delivering courses and programs.
• Enhance educational quality.
• Increase global competitiveness of Kentucky's educational resources.
  (KYVU, 1998)

What else do these state consortial efforts have in common? All operate a "portal"—a Web site that lists participating institutions and courses and, in some cases, degree programs offered online. Their primary operational activity is as a referral service, since none of the consortia are degree-granting and none offer their own courses but rather list those of the participating campuses. Students must choose a "home" campus in which to enroll. Because each of the campuses has its own residency requirements and transfer policies, students inevitably have limited opportunities for study beyond what a particular campus traditionally offers. As a consequence, the majority of students taking courses in these virtual university endeavors are simply on-campus students studying online at their home campuses.

It is questionable how far these efforts, as currently constructed, can go toward meeting their primary goal of economic development, since they have not resolved such thorny policy issues as residency, transfer and articulation, and tuition and financial aid. Despite the hype, students must still follow traditional practices at a home campus. Most virtual university plans have been filled with compromises, trying to balance the needs of distant learners for access to academic offering and services with the concerns of campuses that the virtual university not be a competitor or duplicate functions which the campus provides for its students. These consortia are generating demand for higher education because of the publicity surrounding their creation, but they are also generating frustration on the part of students because of antiquated residency and transfer policies.

Another category of participants in the virtual education space is independent, nonprofit institutions. Some of these—like the Western Governors' University (WGU), the United States Open University (USOU), and Jones International University—have been recently formed. Others—like the National Technological University (NTU) and Excelsior College (formerly Regents College)—have been around for years.

Founded in 1984, the National Technological University was established to deliver academic courses directly into corporation training facilities, via satellite, for engineering professionals. Today NTU awards master's degrees in 18 engineering, technical, and business areas and offers more than 1,300 academic courses, all supplied by 52 leading U.S. universities, including about half of the top-25 U.S. engineering schools. Courses today are delivered via satellite, the Internet, videotape, and CD-ROM.

The Western Governors' University opened its doors in 1998. Like NTU, WGU does not teach its own courses but instead has partnerships with other institutions all over the United States to provide instruction through distance education. WGU awards degrees by assessing students' knowledge through a set of competency-based exams. WGU has achieved candidate status for accreditation through a consortium of four regional accrediting agencies.

In 1999, Britain's Open University (BOU) announced plans to begin offering an Americanized version of its distinctive distance education program through a U.S.-based sister institution, the United States Open University. Currently in pilot stage, the USOU faces a number of serious challenges, including adapting BOU's course structures to U.S. students and finding the right students to enroll.

Each of these institutions targets working adults. Demand is high in professional areas—business and management, health care, education, and information technology. Because these institutions grant degrees and enable students to study according to the demands of their busy lives, the independent nonprofits are closely aligned to the needs of the changing economy.

Corporate universities exist predominantly in the United States. According to Corporate University Exchange, their number rose from 400 in 1988 to 2,000 in 2001. The significant increase in the number of corporate universities could be a sign that companies no longer consider continuing education and training as a cost that should be cut but rather as an investment that can attract and retain the best workforce. Companies may realize that they must prepare employees to compete in the global economy, to meet and exceed service expectations, to adjust to changing roles and new technologies, and to respond to current and future global pressures.

Despite the large numbers of "corporate universities," in most instances these organizations represent a "re-branding" of their company's human resources and training functions. Little has changed except the name. The majority are focused on improving the competitive edge of their own companies through improved group and individual performance, and most show few signs of activity at the higher education level. Despite the adoption of a lot of the language of higher education in corporate training circles, few if any companies are, in fact, trying to compete with traditional institutions. Their offerings are primarily noncredit, nondegree courses; 82 percent are used primarily to convey corporate culture to the company employees. Even Motorola University, a frequently cited corporate university exemplar, generates only about 7 percent of its revenue externally, mostly through enrollment in courses like "How to Establish a Corporate University."

Some observers believe that corporate universities represent a potential threat to traditional institutions. Until very recently, colleges enjoyed a captive market, and corporations paid whatever institutions charged for executive education. But today, by launching their own corporate universities, companies are taking it upon themselves to educate their employees and/or to demand courses that fit their particular business needs and challenges. They are also requiring that courses be developed more quickly and at more competitive prices. In addition, corporations want their educational partners to provide many more, often time-consuming and costly services such as round-the-clock access to professors, mentors, and fellow students.

Despite the large amount of attention recently directed at for-profit institutions of higher education, many of them have been around for a relatively long time. DeVry was founded in 1931, the Keller Graduate School of Management in 1973, and the University of Phoenix in 1976.

Two things are worth mentioning in our discussion of the impact of for-profit institutions on traditional four-year institutions. The first is that even though these institutions, like their nonprofit counterparts, are primarily site-based, their greatest growth trajectories are occurring in the online market. The University of Phoenix, for example, enrolled 75,000 students in 2000, a 22 percent increase over the previous year. Their online campus grew by 44.7 percent, to 13,779 students. The projected growth of their site-based programs is 17-18 percent; the projected growth of their online programs is 35-40 percent. In examining these trends, the authors of The Business of Borderless Education: UK Perspectives observed that technology is not the primary competitive issue, despite their view that in the longer term, "the majority of continuing professional development is likely to become virtual." The U.K. and Australian teams agreed: "At present, virtual, corporate and for-profit institutions are not far in advance of traditional universities in exploiting the potential of technology to change their educational model."

Rather, the biggest competitive challenge to existing institutions, particularly those that serve working adult students, lies in the more efficient way that the new private providers utilize staffing resources and in their highly professional approach to teaching and learning. Close attention is paid to quality through mandated teacher training, rigorous evaluation of the teaching process, an emphasis on supporting all teachers including part-timers, a focus on professional expertise, and close attention to service levels for learners.

Key elements in the ability of the new providers to attract adult students include convenient locations; 24x7 learner support; frequent enrollment points; short, intensive study periods; the potential for "banking" and transfer of credit; and a curriculum that is taught by practicing professionals and that is of direct and immediate applicability to the workplace. The Business of Borderless Education correctly observed that in the professional-development market, "the social aspects of learning are perhaps less significant than in undergraduate education." These providers are creating a new kind of institution—one built on inclusiveness and accessibility, much like the community college, rather than on the exclusiveness and inaccessibility that typifies our medallion institutions. In the process, they are creating new "brands."

What lessons can be gleaned from this analysis that will benefit Virginia's effort?

First, the vast majority of "new" students enrolled in online education cannot or do not wish to enroll in campus-based programs. Second, working adults value convenience and flexibility, 24x7 learner support, ease of transfer and curricula that are directly applicable to the workplace. Regardless of the particular institutional or organization structure one chooses to employ, characteristics such as these are essential to success. Third, because the online higher education landscape is becoming increasingly competitive, rapid development of programs in this arena is essential. Fourth, while "one-stop shopping" and consortial activity appear to be a natural place to begin a statewide virtual campus initiative, no existing virtual university consortium has resolved the thorny problems of transfer and residency (primarily because they have not, for the most part, been resolved by prior state policy efforts). Finally, we believe that Virginia has not fallen behind other parts of the country and may be able to move ahead of existing efforts by adopting the innovative strategy outlined in the Executive Summary.

To be sure, most of Virginia's current higher education outreach programs are based on a 1970s broadcast TV model—still place and time bound, delivered in a classroom. However, both the time and the place are more convenient to potential students thereby significantly broadening access. Old Dominion University's TELETECHNET, developed with seed money from the Commonwealth, is an excellent example of what can be constructed in this vein. While at one level this delivery strategy may sound somewhat archaic, suffering from the limitations that characterize site-based programs, it compares favorably with the vast bulk of technology supported distance education in other states. Offering 20 baccalaureate degrees, ten graduate degrees and several certificate programs, TELETECHNET enrolls more than 20,000 students annually and can proudly point to more than 2,000 graduates. TELETECHNET is a significant departure from the historic delivery of education which is constructed on a 14^th century model, and demonstrates the willingness of what was once a traditional, campus-based institution to develop an innovative response to educational needs when incented to do so.

Similarly, the Community College System now has 30,000 unduplicated headcount students taking courses online including a number of degree programs. Distance learning at the community college level is growing at 20 percent per year. Fifty percent of all of the Commonwealth's community colleges have a general education degree online. In addition, the Community College System has initiated a number of successful online programs that share learning opportunities for students in low enrollment Associate Degree programs that would otherwise not be available to the vast majority of Virginia's citizens.

Probably the oldest distance learning effort in the state is the collaboration of the University of Virginia, Old Dominion University, George Mason University, Virginia Commonwealth University and Virginia Tech in the delivery of post-graduate engineering education. Beginning before the Internet, even before televised lectures, using the technology of the TeleWriter, this program has been, and continues to be, a well recognized success.

Virginia institutions of higher learning are not currently taking advantage of the infrastructure provided by Net.Work.Virginia which would permit new modalities of educational support for the online learner. Clearly, one reason these new approaches to education—asynchronous, self-paced, web-based, flexible time to start and finish, etc.—are not seen more frequently is the absence of seed money or venture capital to help defray the larger development and start-up costs. Another reason has to do with the low population density of so much of the geographic extent of the Commonwealth. These areas are dramatically undeserved in terms of access to the telecommunications technology to take advantage of new modalities of learning. Any proposed solution strategy must, at some point, consider ways to surmount these infrastructure inadequacies by encouraging the institutions of higher education to devise new ways of bringing high speed telecommunications capability to Virginia's chronically underserved, less populous regions.

The outside observer is inclined to think that Virginia's historic institutional independence has not inhibited those institutions who so desired, to aggressively, and frequently collaboratively, enter the field of distributed and distance learning—and to do so quite successfully. The insider, on the other hand, is likely to bemoan the lost opportunities occasioned by the relatively uncoordinated, self-interest motivated, actions of the Commonwealth's institutions of higher learning. It is sometimes useful to remember the first law of engineering:

If it ain't broke, don't fix it.

In the case of the Commonwealth's institutions of higher education, the second law of engineering may be as appropriate:

If you can't (or don't want to) fix it, feature it.

The consultants believe that an approach for Virginia that features institutional autonomy is preferable to one that tries to fix it.

As might be expected, the consultants heard a litany of issues that appeared to be driving the interest in some sort of electronic campus for Virginia. Some issues, perceived to be a problem by one group, were not considered a problem by another group. The view of the relative importance of an issue clearly hinged on the perspective of the evaluator—community college or senior institution, campus or Richmond based, education insider or outsider, etc. Nevertheless, certain issues were raised with sufficient frequency so as to suggest that they should help inform any proposed course of action.

• Coping with an estimated increase of 38,000 traditional-age students during the next decade.

It would appear from our conversations that the projected increase in traditional-18-22 year-old students was not considered to be a particular driver, even though almost everyone mentioned it. It would be unrealistic to expect that this cohort of new students would be serviced in any major way by online education opportunities since most of those students are presumed to be seeking a residential experience. Online learning can help meet enrollment growth by supplementing residential instruction with online offerings. For example, one Florida institution has set a goal of having undergraduates take 25 percent of their courses online, thereby relieving pressures on already overcrowded campus facilities.

A focus on the estimated increase of 38,000 students during the next decade can lead to a narrow view of the Commonwealth's "burden" of higher education. Although that number is substantial, it represents only the tip of an iceberg of potential students who will be seeking additional post-secondary learning experiences. (It also represents a community of students which existing institutions know well how to service.) The less well understood potential student is the second and third career professional in search or reskilling. In terms of student load, this is also likely to be the larger burden on educational resources in the future. Clearly, one of the first efforts of any solution proposal will be to more accurately assess and identify this community of potential learners.

Balancing the need to serve traditional and non-traditional students at the undergraduate level often does not address other needs such as workforce training, second career preparation and so forth. Only when all such needs and projections are brought together can the Commonwealth begin to adopt policies to serve all of those populations.

• Serving educationally underserved communities in both degree and non-degree educational initiatives.

The lack of clear advocates for educationally underserved communities of interest in areas of the Commonwealth like Southside and the Eastern Shore is reflected in the focus on resident undergraduates by most of the Virginia education establishment. The other segments, which include degree and non-degree seeking students, are typically substantial. The success of the University of Phoenix and comparable institutions has come from their recognition of the size of some of those markets.

However, for-profit institutions are forced, by economics, to address the "low hanging fruit"—the market segments that provide sufficient density of demand so as to make the business case easy. It may well be, and probably is, the case that those unserved educational markets that have the most value to the Commonwealth from an economic development standpoint, do not make such an easy business case. It is useful to remember that the education system (public, private, for-profit, etc.) is a fundamental part of the Commonwealth's infrastructure. The agency of the state is used to address an infrastructure problem when it is apparent that private enterprise is unable to make the business case but the value to the common good is sufficient to call for solution of the problem; hence, governmental agency involvement in road, bridge, and dam construction. So it must be with education as well. Online education represents a powerful lever to redress imbalances.

• Offering opportunities for degree completion for those who have attended college but failed to graduate.

Some of our interviews identified poor graduation rates for students at some institutions as an issue. While we have not studied the Virginia statistics, the numbers we heard were not at great variance with what other states report. We are mindful that the past two decades have seen a 20 percent increase in the percentage of high school students going on to college. This surge of new students undoubtedly contains a higher percentage of less well-prepared and less well-motivated students. That graduation rates have dropped in the less selective institutions is neither surprising nor particularly alarming.

Graduation rates are certainly a matter for concern for both institutions and policy makers. The cost of student drop-out is considerable since significant numbers of those students re-take courses if they return to public institutions and the public investment is lost if they do not return. Low graduation rates also impact the curriculum, course size, dormitory needs, and so forth within the institution. Higher graduation rates, on the other hand, would conceivably impact the enrollment pressures in the institutions. However, the graduation rates cited for Virginia (60 percent) are neither low nor high and probably cannot be substantially affected by public policy.

Even if one were to be alarmed by the trend, it is not clear in what way an electronic campus or virtual university would address the problem of unacceptable graduation rates at particular institutions. Poor graduation rates have many causes, most of which online education cannot address. To the extent, however, that there may be a large number of students lacking a relatively small number of credits to complete a degree program (the "swirling student"), online education offers a potential remedy, especially when those students are unable or unwilling to return to a residential campus.

• Providing for more than occasional bilateral agreements for transfer of credit between institutions.

Institutional representatives with a substantial out-migration of students—the community colleges, for instance—not surprisingly, considered the transfer of credit issue to be a problem. It was frequently viewed as a problem by institutions with a substantial in-migration—the senior institutions, for instance—but not admitting of a simple solution that could be codified in some obvious way. Of course, the transfer of credit issue pre-dates and is generally disconnected from the creation of online learning experiences. One is inclined to take the pessimist's view that if the institutions have not resolved this problem in the preceding 50 years, why should we expect the existence of computers and fiber optics to change that situation?

The transfer of credit issue has two major facets; the acceptance of credit done elsewhere as one is admitted into an institutional program of study and; accommodation of the "swirling" student who has, perhaps over an extended period of time, accumulated course credits that fit no current, coherent college or university program of study. The former problem seems one that should be addressed bi- or multi-laterally by the Commonwealth's institutions, particularly in situations such as transfer from Community College to senior institution programs. The latter, to the extent that it can be identified as a real problem, could be handled in a number of ways, each involving the design and operation of a program to assist the "swirling" student to degree completion.

• Affording non-traditional second and third career professionals and workforce development candidates access to higher education.

Providing access to non-traditional second and third career professional and workforce development students tests the limits of public policy in most jurisdictions. From our interviews, Virginia is no exception. Americans are accustomed to the notion of supporting or subsidizing students from grades K through 12 if not K through 16. While the mechanisms differ from the public school level through high school and into the community college and college level, the public generally provides support through taxation and loans underwritten by local, state and federal government. But the non-traditional students—older, part-time, evening, commuting or non-U.S. citizen—are treated unevenly at the collegiate level. The Federal government has, in recent years, been struggling with making student loans available to part-time students and online students. Various support funding is often not as available to them as to the traditional students, even though the so-called traditional students are in the minority on most large university campuses.

Workforce development students present a difficult problem to policy makers. What programs should be available from public institutions? What support for such programs should be available to the institutions and/or the students? Program support, differential tuition, student aid and a host of other financial support programs might be made available to foster workforce development. But how are such programs to be balanced against the needs for traditional undergraduate education when the Commonwealth is struggling to maintain programs for the latter? Few jurisdictions would claim to have achieved an ideal balance.

However, without some entity within the Commonwealth to bring to light the student need for programs, support or even new institutions, policy makers are likely to focus on the traditional student and to neglect the economic driver of workforce development as a key factor in post secondary education.

• Overcoming the possibility that Virginia's institutions will be left behind in a new, highly competitive online environment.

A fear of being left behind in a new, highly competitive online environment seems to be a major driver for many institutions' increasing interest in distributed and distance education. What many institutions implicitly realize is that the market for non-traditional, new majority students is much bigger and growing much faster than that for traditional age students. Many institutions worry that ceding the new majority market to their rivals will eventually diminish their influence. Consequently, according to some estimates, over 90 percent of U.S. institutions are either initiating or extending their distributed education programs.

In the preface to this report, we argue quite forcibly that Virginia needs to develop the capacity to compete in this market, and we reiterate that point here as well.

• Establishing a way to deal with a perceived lack of leadership at the state level in regard to distance and distributed learning.

Neither an electronic campus nor a virtual university guarantee leadership at the state level. Leadership in delivery systems comes only through initiating and maintaining these systems, not by fiat. It became clear in our interviews that what one person desired in the way of additional coordination was perceived by another as unwarranted interference.

A number of our interviews surfaced the opinion that much of the lack of leadership and coordination that was of concern was more likely the result of campus policy (or lack thereof) than it was of some failure at the state level. Many of the problems pointed to such as transfer of credit, funding, etc. seem only loosely connected with issues of online learning. Many were prepared to substitute the "devil they didn't know" for the one they did because the current problems seemed so intractable. The consultants are of the view that the new set of problems engendered by a new virtual university or electronic campus would be every bit as difficult as the old and, very likely, would include some, if not all, of the old.

• Providing streamlined access to the state's institutions via a portal.

The consultants were asked to recommend optimal ways to secure an electronic portal that allows students to apply, register and receive programming and support for their learning activities. Each of the foregoing is a reasonable expectation of a student enrolling in a learning activity and each is currently the responsibility of the institution that serves as the home for that learning activity. If there were to be established a separate and new entity to provide learning activities then it would be a reasonable expectation that the new entity provide these same services.

It would clearly be of value to citizens of the Commonwealth to have a single access point to identify the range of programs and courses, and specifics regarding them that are available across the Commonwealth. One can easily visualize "clicking" on a web page to transfer to the portal of the providing institution. What is not so easily accomplished is the provision of common application, registration, billing, and other student services, especially in a state that prides itself on not having a higher education "system."

What we have here is the conflict of two core values of the educational establishment in Virginia; it should be convenient for students to acquire learning activities, and it is important for the Commonwealth's institutions to maintain their highly valued independence and autonomy. Certainly every institution will have a slightly or significantly different process for supporting its various programs. This is the good news and the bad news of independent and autonomous institutions. What seems to be missing in Virginia is any commitment (or even any expressed interest) in spending a significant amount of time in wrestling with institutional differences to achieve "one click" registration and the like.

The consultants also noted that a simple listing of courses or programs would seem to be of minimal assistance to citizens in search of learning opportunities. Some strategy to assess the value of the listing elements would be of particular help to individuals attempting to choose among programs or courses. User feedback strategies such as those employed by ebay, Zagat or Amazon may have value.

• Creating a mechanism to offer degrees not offered currently by Virginia institutions.

Traditional institutions of higher education cannot easily add new programs to the curriculum for a number of very good reasons, including the prospect of hiring permanent faculty to staff new programs. Yet, as markets and tastes change, students seek degrees and certificates in the changing economy. Given the broadening of the educational landscape with the introduction of new kinds of providers, it seems unlikely that significant educational demand will go long unmet. Some mechanism is needed to help students find the degrees from providers unknown to them. A virtual university or electronic campus is used in some states to provide that mechanism. However, simpler devices such as a public portal can serve as well. A portal, well publicized and marketed, can serve as a major resource for students who seek degrees not delivered by institutions known to them.

To the extent that existing institutions perceive a substantial demand for an educational offering, and to the extent that such is in an area compatible with their mission, one would expect that they would move to fill the gap. Two things, however, seem to be missing in Virginia: 1) demand side information to identify which potential offerings will have a reasonable student constituency, and 2) a business planning process that will enable institutions to address specific problem areas and not further erode their perceived budget situation.

• Taking advantage of online learning to meet enrollment growth at less cost.

Our interviews surfaced the opinion (or the hope) among some that online learning can be less expensive than traditional bricks and mortar. As the projected enrollment growth is in "traditional" students, seeking a residential experience, that hope seems misplaced. Even if it weren't, a point that we make several times in this report is that programs are not intrinsically less or more expensive because they are offered online. There are expensive online courses and there are inexpensive online courses. The relative expense is a function of parameters chosen by the course designers. And, of course, the same is true for traditional campus-based programs. How else would we explain the tuition differential between institutions offering the "same" course?

What is clear is that any organization in the midst of transition from one paradigm to another (say residential to online instruction) will experience higher costs as it is required to continue doing most all that it had done under the old paradigm while attempting to create new offering under the new paradigm. This transition will never be accomplished absent seed money—whether generated internally from some sort of R&D funds or externally from some form of venture capital.

The higher education institutions of the Commonwealth are sometimes quite noisily criticized for absorbing what is considered too large a share of the state budget. This generally translates into accusations of inefficiency. It seems only fair to note that today's institutions are serving more students with a lesser share of state resources in an environment of capped tuition. How have they done this? The typical strategies of any highly labor intensive activity are to become less labor intensive or to maintain their labor intensiveness but substitute less expensive labor resources. It is clear that the Commonwealth's institutions have followed both strategies. To reduce labor intensiveness they have increased class sizes. To reduce labor costs they have substituted adjunct faculty and teaching assistants for full time faculty. Both decisions are roundly criticized, both from within and without the academic community.

Another avenue to reduce costs in a labor intensive industry is to substitute capital, in the form of technology, for labor. The presumption is that capital costs are more of a "one time" nature, or require replenishment funding less often than annual labor costs and fringe benefits and, in the case of information technology, are decreasing rather than increasing as are labor costs. However, to begin even a partial transition to less labor intensiveness requires the presence of venture capital—particularly when the organization's labor force is fully deployed and it is extraordinarily difficult to realign organizational resources without damaging the quality of the product, which in this case, is the education of the citizens of the Commonwealth.

It seems fair to say that the Commonwealth's institutions of higher education are poorly prepared to understand how and where to substitute technology for labor. It seems fair because the same observation can be made regarding the education establishment of any other state in the Union. There are, in Virginia, a few notable examples of the introduction of technology to break through seemingly impermeable barriers. We will mention only two.

• VIVA, the Virtual Library of Virginia, has created a consortial approach to acquiring on-line educational resources that has not only reduced the cost of the resources where they were already in place, but has caused their availability to exist in places that, absent VIVA, they would never have existed. Ultimately, access and convenience is greatly enhanced for all citizens of the Commonwealth.
• The Math Emporium at Virginia Tech has directly attacked the labor intensiveness of math education with a self-paced, technology supported learning environment that is both less costly to support and demonstrates improved learning, student retention and student satisfaction. The Math Emporium experiment has been so successful that it is being replicated at institutions in several other states.

In the VIVA example, the venture capital to undertake the transition to a new service modality was provided by the Commonwealth but continuing operation is increasingly shared by the institutions as they understand and reap the benefits. In the example of the Math Emporium, only gut-wrenching decisions and extraordinary work schedules by the math faculty were used to produce the "venture capital." Absent an impending disaster created by increased student load and reduced faculty resources it would be difficult to imagine why any institution would undergo the level of trauma represented by the effort to create the Emporium without the incentive of venture capital.

During our interviews we heard numbers ranging from 20 to 80 percent as the amount of the real cost of a student enrollment that is supported by state funds. To some extent, the spread is probably reflective of the differing mission and roles of the institutions. As the percentage of real cost supplied by the state has dwindled, and during a period of capped tuition, institutions have taken a series of cost containment steps that are viewed as reducing the quality of a student's educational experience. While no institution wishes to make this observation public, all are eager to make it in private.

While education theorists are not of a single mind as to the negative (or positive) effects of increased class size or the substitution of adjuncts for full-time faculty, it is clear that the Commonwealth's institutions have decided that these cost containment strategies are undesirable. As a consequence, the acceptance of additional students is viewed as eroding the institution's fiscal situation. We came to understand these as academic code words for the necessity to undertake those undesirable, cost containment strategies to stay within budget.

This budget squeeze, clearly recognizable as a revenue shortfall, has convinced institutions that student body expansion only makes the fiscal situation more perilous. Clearly, most institutions are searching for strategies to reduce the student body as a way to improved fiscal health. Absent base budget adequacy, this is not only rational, but perhaps a case of self-preservation. Precious few of the institutions with which we met perceived expansion, even in highly contained and non-price controlled arenas such as non-credit programs, as a strategy that would work to their fiscal betterment.

Sadly, not only the price, but the real cost, of higher education has continued to outstrip the rise in the consumer price index for decades. It is not difficult to discern why—typically 80 percent or more of the institutional operating budget is devoted to personal services. While some costs, notably technology, continue to decline, personal services cost rise and drive with them the cost of higher education. It appears, and probably is, much simpler for educational institutions to control their prices than their costs.

To take advantage of decreasing costs of technology while concurrently placing less reliance on personal services, requires the presence of seed money or venture capital. When institutions find their personnel fully deployed, as is basically the current situation in Virginia, there are few other segments of their budget which can be tapped for reallocation to create a pool of venture capital. Some have suggested that this might be an appropriate use for endowment funds but, unfortunately, not all state institutions have endowments which will yield any significant venture capital. Those that do are generally using endowment funds to further subsidize the price of tuition through scholarships, endowed chairs, etc.

As Pogo once observed, "It is difficult to remember that you came to drain the swamp when you are up to your armpits in alligators." The only way out of this self-perpetuating reliance on personal services is the infusion of new monies into the system. This is not to say that the institutions of higher education cannot operate more cost effectively, only to say that to do so requires funding for research and development. While R&D funds are a fundamental facet of any business enterprise, they have not historically been a component of college and university budgets.

Clearly, the legislature of the Commonwealth recognizes the need to restore base budget adequacy. Under the best of economic conditions, the time required to do so was presented to the consultants as several biennia. Virginia is not under the best of economic conditions. With a revenue shortfall in excess of $1 billion in the current budget, and a depressed economy which is likely to continue for several years, the restoration of base budget adequacy funds seems even further away.

However, failure to address at least some of the needs of potential students in the Commonwealth, simply drives the institutions further into the morass of reliance on personal services and residential instruction. The long term impact on economic development in the Commonwealth is difficult to assess, but failure to provide post-secondary learning experiences for the non-traditional student will clearly have a negative impact on the desirability of Virginia as a location for new economy business.

Any proposal to address the non-traditional student and distance learning initiatives which appears to prolong achieving base budget adequacy will be viewed with suspicion, if not outright hostility, by Virginia's state supported institutions of higher education. And, rightly so. Any strategy for providing venture capital to assist institutions in addressing the new economy student must utilize the resources of those institutions.

Any proposed solution must operate as a conduit for funds to the institutions that uses them to assist in addressing the educational needs of Virginia's future. It does so, not by shoring up an already unhealthy reliance on personal services intensive, residential instruction, but by providing the venture capital to service both traditional and non-traditional students in new and more cost effective ways.

There are a number of misconceptions about how an electronic campus or virtual university might address these issues. Among these misconceptions are five described below.

• One can launch an initiative, absent demand side information that would identify what segments of the economy drive and need additional post-secondary learning experiences.

Discussions with various constituencies in Virginia revealed a clear lack of demand side information that would identify what segments of the economy drive and need additional post-secondary learning experiences. Many of those representing existing institutions believe that they are fully responding to all demand that exists. Others believe that much unmet demand could be served via online education but could not describe the specific nature of that demand—e.g., do prospective students want credit programs or non-credit programs; associate, baccalaureate or graduate degrees; in what academic and professional areas. Few could articulate an agreed-upon interest on the part of Virginia's citizens to study online rather than on traditional campuses.

In contrast, as part of its planning process, Georgia G.L.O.B.E. (the University of Georgia System's new distance learning initiative ( http://www.georgiaglobe.org/ ) commissioned a six-month study of workforce needs and attitudes toward new learning methods conducted by three organizations. The study consisted of:

A statewide survey of 500 registered voters, conducted by Beth Schapiro & Associates, of Atlanta, Georgia;

Focus group research and analyses and a geo-demographic study of distance learners conducted by Carnegie Market Research, of Boston, MA. The focus group research included both on-line learners from University of Georgia System institutions and random sample groups from the general population.

Georgia citizens are interested in using the Internet and telecourses to acquire more education in fields where the state is experiencing shortages of educated workers.

Over 40 percent of Georgia adults would be interested in attending a college or university in the next three years.

Over 60 percent of those surveyed indicated they would use either the Internet or Georgia Public Broadcasting to take college-level courses.

Most of those surveyed listed childcare, work schedules, family obligations and long drive times as barriers to attending campus-based courses.

Considering individuals' access to the Internet at work as well as at home, over 65 percent of them have access to the Internet. Over 75 percent of suburban residents, and over 50 percent of rural and urban residents have access.

Such a demand study not only identifies the specific education needs of the state's citizens, both prospective students and future employers; it also assesses the willingness and ability of those citizens to study online.

• Online courses and programs are more costly to develop and deliver than their face-to-face counterparts.

Almost everyone we interviewed is convinced that online courses and programs are more costly to develop and deliver than their face-to-face counterparts. Yet one can point to numerous examples around the country and internationally where this is not the case.

Many institutions cap the number of students in online courses to fifteen or twenty, which in turn limits their ability both to scale (i.e., produce more cost-effective courses) and to serve more students (i.e., increase access). Indeed, a new, emerging paradigm for online courses calls for a 20:1 (or less) student/faculty ratio, reflecting the on-campus small seminar. Campus leaders and policy makers are rightly concerned that such applications of information technology are increasing instructional costs rather than controlling or even reducing them.

The highest cost component of instruction is faculty personnel. Currently, the job of a faculty member—whether in class or online—is seen as monolithic: a collection of tasks that are, with few exceptions, carried out by one person. U.S. higher education remains what Bill Massy and Bob Zemsky have called a "handicraft" industry—in which the vast majority of courses are developed and delivered as "one-offs" by individual professors. In most four-year institutions, this repetitive, labor-intensive approach has been transferred to online education as well. Information technology offers the possibility of altering this paradigm.

A number of institutions are breaking through the small-seminar model for online instruction and are creating new paradigms that are both high-quality and cost-effective. By thinking of ways to take advantage of the capabilities of information technology and the Internet and, in so doing, by reconceptualizing the way that courses are designed, many institutions are moving to make collegiate instruction more cost-effective. The Pew Grant Program in Course Redesign, for example, projects an annual savings (coupled with increased quality) of more than $3.5 million as a result of redesigning just 30 courses. [See http://www.center.rpi.edu/fundproj.html for project savings summaries] Over a ten-year period, that number becomes $35 million. Double the number of courses and the result is $70 million. And so on.

What accounts for the difference between the view that by using information technology to redesign courses, we can save money or make money (depending on your frame of reference)—and the common wisdom that no one has yet found a way for online learning to be economically viable?

All instructional implementations—whether at the course or program level—involve choice. One can offer introductory economics for $1,000 by hiring an adjunct faculty member, or one can spend $5 million on developing high-quality, multi-media course materials and hiring a Nobel Prize winner to teach the course. The University of Phoenix online programs, for example, successfully operate at a manageable cost. On the other hand, universities using senior faculty, small classes and extensive technical support have found the costs to be high. Whether online or face-to-face, there are expensive courses and inexpensive courses. The costs of existing courses and programs merely indicate the choices that have been made, not the choices that are possible.

Many of those we interviewed in Virginia approach the cost of instruction as if it were a Platonic ideal rather than the result of a number of design decisions made by the campus faculty and administrators. One thing that experienced online educators know: As you design online courses and programs, you will find that the more you replicate the traditional campus model online—creating what we have called the "bolt on" model—the more your costs will resemble or exceed traditional campus costs. The point is that high (or low) costs are not intrinsic to online learning; they are a result of the design choices that each institution makes.

• A virtual university can be "free" (require no state investment) by leveraging existing resources.

Several of the people we interviewed noted that because of the stringent fiscal situation faced by the Commonwealth, it is not possible to create "something new." Rather the thought is to draw on existing resources or "leverage what we already have." The implication is that a major new initiative to meet all (or some) of the needs articulated by the various constituents does not require an investment on the part of the Commonwealth. As some said, the state has unrealistic expectations of offering a "free service."

The simple fact is that it costs money to do anything new, even if a key part of the new initiative's strategy is to draw on existing resources or to be self-supporting in the long run. Seed money or venture capital is required. When institutions are operating near capacity, as is basically the current situation in Virginia, and capacity is basically a measure of personnel resources, there are few non-personnel budget items that can be tapped for reallocation to create a pool of venture capital. The consultants believe that any institution of higher education can, in theory, develop more cost-effective learning venues. To do so requires funding for research and development. Any strategy for leveraging the state's existing resources to serve unmet educational needs must provide seed money or venture capital.

While other institutions often "contribute" courses to virtual universities within a state system, the operations, administration, marketing and services of a virtual university are not "free." Virtual universities, whether for-profit (University of Phoenix), non-profit (Western Governors University) or state (Kentucky Virtual University), have required millions of dollars in start-up costs. Shifting any "burden" (i.e., services) to existing institutions simply shifts costs.

• Establishing a separate degree-granting institution is a good idea and would solve a variety of problems that cannot otherwise be resolved.

Some of those we interviewed believe that establishing a free-standing, degree-granting institution is the best way to deal with the expressed educational needs of the state. While following this course of action may indeed solve some of the educational problems confronting Virginia, we suggest that doing so will be extremely difficult and will raise a host of other, equally intractable problems.

The first is the need to go through the regional accreditation process. While time consuming, this can be done. The problem is that accreditation requires a number of features to be in place that are at odds with the streamlined organization advocated by those who envision a new institution. Some, for example, would like the new organization to be able to grant degrees but not be a separate institution with its own president. That is not possible in today's accreditation climate. Finding a way to meet the state's educational needs by leveraging the resources of the existing institutions without establishing a separate degree-granting body would be an easier way to proceed.

Second, some believe that as long as the new entity does not offer instruction, it will not be viewed as competitive to the existing institutions. This view ignores the fact that offering degrees would put the new entity four-square in competition with the state's other institutions. Many in higher education believe that the ability to grant degrees is the one remaining asset that existing institutions have in this new, competitive world of online education, one that should be jealously guarded. Finding a way to meet the state's educational needs without competing head-to-head with existing institutions would be an easier way to proceed.

Third, a number of issues were raised that suggest that an independent institution would be able to overcome certain obstacles currently faced by swirling students, the most prominent of which is access to federal financial aid. Currently, students who take courses at different institutions during the same semester do not qualify for financial aid because they are not recognized as full-time students at any one institution. The hope is that students who are full-time at a new "umbrella" institution but part-time at two, three, or four institutions or can qualify for and receive federal and state financial aid. The problem with this scenario is that an institution that does not offer instruction cannot award federal financial aid (as the weary warriors of Excelsior College, New York's degree-granting institution that offers no instruction of its own will attest.) Again, current financial aid policies are closely tied to existing federal legislation and accreditation practices. Finding a way to meet the state's educational needs without taking on federal financial aid policy would be an easier way to proceed.

Those who have been involved in starting such institutions attest to the difficulty of the task. New institutions have been established to address certain problems—transfer, accessibility, admissions, calendar, place and time, and so forth—and can do so with adequate funding and legislative support. However, the problems new institutions are intended to solve often turn our to be issues endemic to the academic culture. Some very new institutions operate very much like their traditional counterparts, lacking flexibility, marketing expertise, educational resources to launch into new areas, and workforce development experience. Such enterprises often take on some of the limitations of its brick-and-mortar counterparts such as taking on an identity as a particular kind of educational institution (associate or baccalaureate level), with a particular mission (liberal arts or professional studies or business), and serving a limited segment of the student market.

Finally, there is abroad a misconception that an electronic campus will serve those segments underserved or poorly served by existing institutions. While that may seem possible, it begs the question of why the existing resources of the Commonwealth—which is to say the existing institutions—are not first brought to bear on the educational needs of the citizens. Only if the existing institutions cannot meet identified needs will a new entity be valuable. Turning first to those structures that have been created to serve the public needs would seem a wiser course.

• Collaboration is an end in itself.

Many of the people we interviewed asked us to recommend ways that the existing institutions could collaborate as if collaboration were an end in itself. Ideas about offering joint non-credit certificates, for example, have emerged not to respond to an unmet state need but because such an effort appears to represent "the path of least resistance." Rather than beginning with the programmatic goal and deciding that a collaborative effort is the best way to achieve it, most of those we interviewed talked about collaboration as the goal or as an end in itself.

A major strength and a major weakness of America's higher education institutions is their independent competitiveness. Some have characterized the business of higher education in America as a cottage industry. After all, there are nearly 4000 institutions. By definition, they do not thrive on cooperation and collaboration. Typically, the public institutions within the individual states have been coerced by legislatures to cooperate (at some level) but the price—both financially and politically—has often been high and the results varied.

Collaboration is an extremely difficult thing to accomplish in higher education, just as it is in the world of business. Unfortunately there are precious few examples of success in either, especially in relation to the number of collaborations that have been attempted. Collaboration succeeds, in our view, when the collaborators are extremely clear about what they are trying to accomplish and why they are trying to accomplish it. Collaboration also succeeds when the collaborators are unable to accomplish the goal as individuals. In our view, the Commonwealth of Virginia would be wise to take the proven path of least resistance in meeting its educational needs and view collaboration as a mechanism to invoke when no single institution can meet those needs.