1. Using Porter's five-forces model, what does the competitive structure of the online retailing industry look like? What are the implications of this structure for the long-run profitability of Apollo in the market?
2. What internal factors and macro-environmental factors will impact Apollo's competitive advantage?
3. To what extent is Apollo's competitive advantage sustainable?
4. What business-level strategies is Apollo using and why are they successful?
5. What characteristics of strategic leadership are evident in John Sperling?
In 2012, The Apollo Group, parent company of the University of Phoenix, is faced with new Federal regulation requirements regarding the for-profit education sector. The University of Phoenix is the largest provider of higher education in the United States, with over 400,000 students, operating around 200 campuses and learning centers in 39 states. It is the flagship subsidiary of the Apollo Group, which also runs Western International University, the Institute for Professional Development, and the College for Financial Planning. Between 1996 and 2010 its revenues expanded from $214 million to $4.9 billion and net profits increased from $21.4 million to $553 million. The University of Phoenix accounts for about 90% of the revenues of the Apollo Group. Apollo's return on invested capital, a key measure of profitability, averaged around 30% over this period, well above its cost of capital, which has been calculated to be around 10%.While these results certainly vindicated the conviction of John Sperling, the founder of the Apollo Group, about a need in the marketplace for education aimed at working adults, there are clouds on the horizon in terms of increased competition in some of its businesses, especially online offerings, as well as continued questions about recruiting practices and high drop out rates which probes the value of its products in the marketplace.
The case describes the background of John Sperling and how he developed the idea for a for-profit education enterprise, going against the established paradigm, and institutional norms, that education is best delivered based on not-for-profit principles. John Sperling's background as a former history professor, with a Master's degree from Berkeley, and a Ph.D. in economic history from Cambridge University, and subsequently as a tenured professor of economic history at San Jose State University in 1960s certainly provided him with an insider's perspective of the education establishment, and positioned him well to identify the potential students (or "customers") that the establishment was ill-equipped to serve. The Apollo Group expanded rapidly with a business model that provided a standardized product tailored to the needs of working adults. Lower cost structure due to lack of terminally qualified faculty and focus on teaching facilities rather than the traditional campus infrastructure, among other things, were complemented by a centralized curriculum design that could be delivered by knowledgeable working professionals looking for extra income. In more recent years, Apollo has leveraged the Internet to offer online education, which promised to serve an even greater number of students at their convenience, at a lower cost of delivery.
The company's strategy has been to grow by opening more campuses and learning centers in new states, by increasing enrollment at existing campuses and learning centers (through customized computer programs), and by product extensions, including online course offerings and expanding its associate degree offerings through Axia College. From 2006 to 2011, Apollo, with competition being prevalent, was plagued by criticisms by the media, traditional higher education, and government with respect to recruitment practices and the significant impact of their educational practices. Therefore, in 2010, Apollo changed its compensation system for admissions personnel to eliminate any tie between compensation and enrollment volume. Apollo also introduced a three-week program called University Orientation for students with limited college experience. The students are not charged fees during this period, but are introduced to curriculum and teaching practices. The idea is to help students determine if enrolling on a program at the UOP is right for them before they take on any debt. In 2010 Apollo's revenue from Federal dollars stood at 88% and was approaching the 90% limit. The company recognized that staying below this limit may constrain growth going forward. The UOP was also only 1% over the required 45% loan repayment rate, although the company believed that the University Orientation Program would change this going forward.