Apollo Gourp Case

CASE 6

APOLLO GROUP: UNIVERSITY OF PHOENIX

1. What is University of Phoenix’s business model? They cater to working adults who make up 95% of their business. They have working friendly class schedules and market to people who are in the work force but want to move into something better. They keep costs down through lower cost labor (professors) and have a minimum support staff. They also keep costs down by how they structure their campus, which serves to keep labor and fixed costs down. They offer education only and do not offer many of the “extracurricular” activities not for profit universities have.

2. Using Porter’s five forces model, what does the competitive structure of the industry look like? What are the implications of the structure for the long-run profitability of Apollo in the market? How would you define the industry?

A) Entry-There has been a considerable amount of entry into the industry space, in 2006 there were 850 for profit institutions.

Substitute-The obvious direct substitute for the ”for profit” institutions are the “not for profit” institutions. The NFP institutions are starting to offer accredited courses in much the same way as the FP schools. They are starting to offer classes on nights and weekends and are actively recruiting the working populace.

Complement-While not directly addressed in the case MOOC’s “Massive Open Online Courses” are giving more people a taste for what education can do for them at discounted prices or in some instances free. These classes boost the demand for education in general and can serve to enhance the profit opportunities in the industry.

Supplier Power-The industry hires professionals to do the teaching. This is in sharp contrast to the salaries commanded by the professors at NFP schools. There is little discussion in the case about the FP professors negotiating salaries to enhance their supplier power.

Buyer Power-The competition in the industry is such that prices for education are being driven lower and the available money to assist the student in paying for their education is ever present. (Government Assistance.) Additionally the companies hiring the graduates have been reticent to employ FP graduates.

B) While there are a lot of entrants in the industry Apollo still controls the largest share by far. This gives them the brand recognition to continue to be a leader in the for profit education industry. New entrants and the continual adaptation of NFP schools will serve to erode profits from Apollo. New ventures such as MOOC’s for a degree will also continue to erode the FP offering.