The Skills Revolution - A Conversation with Michael Hansen, CEO of Cengage

In this episode, I talk with Michael Hansen, CEO of Cengage.  Michael and I talk about the transformation of Cengage, a well known global higher education publishing company. Michael has been leading the transformation Cengage from a traditional publisher to a digital publisher and a provider of workforce skills and training. We discuss his push into the skills marketplace and he gives me his take on how AI will impact his industry.

Transcript

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Eloy 0:09

Hi, I'm Eloy Ortiz Oakley and welcome back to The Rant, the podcast where we pull back the curtain and break down the people, the policies, and the politics of our higher education system. In this episode, I get to sit down with a good friend and colleague, Michael Hanson. CEO of Cengage. Michael has led Cengage since 2012 and has overseen the transformation of one of the largest publishers in America. Not only has Michael led the evolution of this education publishing giant, but he has also transformed Cengage into provider of workforce skills and training. And we'll talk about that evolution. But before that, let me welcome Michael. Michael, welcome to The Rent.

Michael 0:52

Thank you, Eli. Good to be here with you.

Eloy 0:54

Well, it's great to have you, Michael. Thanks for doing this. And before we start discussing the evolution of the publishing industry and the evolution of Cengage, let's talk about you and your evolution. Tell us a little bit about your education and professional journey. What led you to this role at Cengage?

Michael 1:12

Thank you. And again, thanks for having me. So my evolution started in the Rust Belt of Germany. Really I was born to a lower middle middle income class family. The Rust Belt of Germany had my primary source of information about America was a television series called Kojak. I think I shared that with you before. He, I think had the same hairdo that I did

Eloy 1:36

It was quite an influence apparently.

Michael 1:38

Telly Savalas had quite an influence on me. And literally to answer your question about the the education system, I participated in the German education system up until I got a law degree in Germany, and then I figured out I was neither a particularly gifted nor particularly interested lawyer. So I figured out I need to do something else. And I came to the U. S. literally with two suitcases, and At JFK airport and and a dream and a desire, to do something different and something else, having grown up with a lot of american troops in germany at the time in the post world war ii area And have been benefiting greatly. I attended Columbia Business School and then made a career in the United States, but I've also kept some of the learnings that I had, in Europe, in Germany and, and, and try to infuse that in, in what we're doing at Cengage at Cengage today. And I'm sure that's something we'll, we'll talk about.

Eloy 2:36

Absolutely. Because that background in, in Germany and, and in Europe, this, this whole notion about apprenticeships is something that a lot of states are talking about. what, what do you see the difference between the two systems here in the U. S. and, and in the E. U.?

Michael 2:53

The key difference is time you know, meaning the, the German. Swiss Austrian, because it's not just Germany. It's those three German, mostly largely German speaking countries have built this system since Bismarck was chancellor, which was in the 1890s. So like 150 plus 160 years ago. And a lot of the infrastructure has been built over a long, long period of time. So I think we in America and I'm an American citizen. So I count myself now, like, like, you know, an adopted child of this country. We, sometimes which is admirable. And this is what I love about this country. We want to fix things like really quick. Like, let's just like figure out one solution and it's going to work. Well, it, it took a little bit of time to, to establish those systems, but the fundamental principle, I think that we actually need to. That we need to get to in our unique American way is the connectivity between the labor market, what you actually do with a job and the education system and the German system have found it out in a way that they intertwined that from a very early age. So it's not uncommon that somebody at the age of 16, 17, in fact, it's majority is already working and is. Participating in the education system at the same time. You use the word apprenticeship. I think that is a, you know, it's, it's a very good characteristic of that. And there's two benefits. One is the, the, the student or, you know, we'll have a much, much higher probability of getting a job. Germany, Austria, and Switzerland are the only three countries where over 30 years. Youth unemployment was lower than average unemployment, the only developed countries in the world. So there is evidence to that fact. And the second thing is in a, in an area of tight labor markets, you know, employers are getting. Employees that actually know specifically what they should be doing in a job. So it really works well once we get it figured out.

Eloy 4:54

And we'll talk a little bit more about skills a little later, but let's, let's talk about your employer and the, the transformation that you're seeing. So you've been in the education publishing industry for a little while now. Leading an organization that is well known in the education publishing industry. How has Cengage navigated the changes over the last several years, and in particular, you know, there's been quite a bit of pressure from institutions, from student groups to lower the cost of textbooks. How, how have you and your team responded to all those pressures? Mm

Michael 5:33

Well, I would say we started off when I started at Cengage 12 years ago with accepting that challenge as opposed to denying that challenge, right? I mean, there was a time where people said, well, I don't care. And you know, we, there was a time when we sold textbooks for when I came in, I think our. You know, most expensive title was like north of 350, which is ridiculous for a textbook to pay and ask anybody to pay. So we accepted the challenge and we said, we got to bring the cost of textbooks down, but as we are a unapologetically for profit enterprise, we got to do it in a responsible way, financially responsible way. So what we figured out was what we want to do is get more customers that are actually paying us money. But allowing that through getting more customers, allowing them to pay less and less and less. And now, and then we introduced, and you and I talked about it quite a bit. We introduced the model saying age unlimited and all you can eat model. So instead of paying 350 for a textbook for 120, you basically get a subscription, Netflix, like subscription to all of our library of 22, 000 textbooks, and you can do all you can eat. So that has helped us that and other measures have helped us to really Maintain the maintain the revenue and maintain the profitability, but significantly lower the cost of the student.

Eloy 6:55

Where do you see technology now taking the publishing industry? I mean, you know, you can't turn a corner anywhere in in society right now without talking about the impact of AI or what people believe the impact of AI will be. Because I don't think we've really, really seen it yet. We're feeling it. How is the publishing industry going to feel that impact?

Michael 7:18

I think it's an excellent question and, and I'm, I'm gonna show my my tenure and my age a little bit in saying I, and, and you will, I, I, I hope you will recognize this. I, I don't think there has been a year that not something was chased through the education system that will save the world tomorrow. Right. That will make everything better tomorrow. Whether that was MOOCs, whether that was personalized learning whether that was adaptive learning, et cetera. And I have become somewhat skeptical about these save the world predictions, I would say. That said, I do believe that AI, as other technologies as well, correctly applied. And scaled in the right way to really millions of students, I really want to get away from this notion of like, Oh, what's the leading edge? You know, what are people doing at Harvard, Yale and Stanford? But to some extent, I mean, these are beautiful institutions. I love them to pieces, but they don't move the needle for the vast majority of students. So where I see the power of technology and specifically AI Is the students that are left behind the mother off to that has a job that wants to attend a community college in, in, in California, we can actually give her a pal and a I power tool that sits next to her. And when she's there at 10 o'clock at night, doing homework when the kids are in bed to help her power through that homework in a more efficient way. That's what I see as the use cases that will gain ground Sooner than some than, than others. Will it ultimately change, you know, the whole industry? I don't know. I'm somewhat skeptical, but I think those tools are going to be very powerful.

Eloy 9:00

Well, I think the way you put it is exactly the way I wish everybody was talking about it because we have lots of experience with technology changes and the evolution of technology that benefits those who already have the greatest access to wealth, who can afford to Mm hmm. Thank you. Adopt these tools. I really hope that we begin to design AI tools for those who have the least access to technology and begin, begin there. I think that would then truly transform the way we think about society. But in the meantime, we'll see. I mean, I can't, I can't go anywhere without people talking about how this is going to be the great equalizer. Well, we've heard that before.

Michael 9:46

We've heard that before and I think the, the you and I are truly joined at the hip in that, in that mission, not only because we want to do good for people that are left behind, but I really think we need to understand that this is critical for the development of our society. It's not only the right thing to do, but it's critical for us because otherwise the wealth gap, the skills gap is going to get wider and wider and the dysfunctionalities that we're seeing in our society and our political system are going to get worse. to me, it's not optional. And I think there's a real opportunity there.

Eloy 10:17

we've certainly seen the negative impacts of AI in society So let's talk more about Cengage. Part of your evolution is. You've recently launched into the workforce skills training and upskilling market you're helping people gain skills that they need to continue to grow with their employers, continue to evolve their skill set to meet the needs of today's marketplace. Tell us about that effort. I believe it's called Cengage Work. And how did you decide to get into the skills business?

Michael 10:55

it's one of those things that comes back to things take time. We got into the sales skills business with an acquisition over a decade ago of a company called ed to go education to go. And we grew this business actually consistently and consecutively every year. It was a very, very small part of our overall portfolio. But as I said, we, we kept feeding it, we kept nurturing it, we gave it light and it, it, it kind of grew. So there was something that very organically grew for many, many years in the organization. And then I think when it became clear I would say over the last, you know, five to seven years that we are leaving too many people behind in the traditional education system.

Eloy 11:44

Mm hmm.

Michael 11:45

to put a very specific number on it, only about 25 percent of high school graduates will actually graduate college. And still, you know, people are running around and saying, the path to the American middle class is college. And I'm going, why? Why are there no, not multiple paths to the American middle class? And this is what we're setting out to do with CengageWork. We want to give people for a limited investment, 3, 000, a very specific skill set that they can take to an employer, or even better, the employer pays for the 3, 000 and turn it into a job, turn it into a small house, turn it into my ability to educate my children. And I think it is something that comes very naturally to us at Cengage because our credo says, we touch the lives of millions of people globally every day, one student at a time. Doesn't say anything about textbooks. Doesn't say anything about you know higher ed. It says something about we want to impact positively the lives of millions and millions of students, which we do every day.

Eloy 12:53

I think that's a great way of looking at it because, you know, you're in an industry where you are literally in the hands of millions of students every day. if you think about that and, and the power and the opportunity that lies in that, it's, it's great that you're thinking about how do you, how do you leverage that to help these learners continue to improve, continue to have access to great learning and to acquire the skills that they need to work. just a, a rough estimate. how many learners do you think you, you touch in any given year?

Michael 13:30

In any given year, we are touching about 250, 000 learners in the skills area. Obviously in terms of our more traditional legacy business, the digital, which is now mostly digital. So the people that we touch in the United States alone is about 12 million students that are currently enrolled either in community colleges or in four year institutions. And this is something you and I talked about you know, helping these students on their path, not only in the four walls of a college, but also before and after and during their path to employment is something we're very dedicated to.

Eloy 14:06

So, given that you've moved into this area, and as you said, it's been about a decade since you've started to, to think about skills, and you, you're doing so in a big way now How do you think about the skills market today and where, where do you see your place in that market? And how do you see that marketplace evolving? Because it seems like a lot of different players are entering into that space.

Michael 14:31

There is a lot. And again, it goes back to one of those beautiful things about American culture and the American system is like, you know, money gets thrown at stuff that like looks cool, right? And that we got to do this and this is wonderful. I am all for it. And we are certainly part of that as well. But the reality, the reality of the current situation is that a lot of companies have tried. To enter that space, but have found it quite difficult to make money to sustain their trajectory. And the reason that they found it difficult is that they set it up as. An alternative way, and they went directly to a student to this mother of two in the middle of the country that is trying to go ahead, and they found that acquiring those customers is very expensive because you've got to do advertising, promotion, outsourcing, etc. So this so called direct to consumer model has proven to be not sustainable and really, really hard to execute. And we came in. Actually, it's organically, not because we're geniuses. We came organically differently. We live in the. Existing education system, and you have seen it firsthand in California. There are a lot of students that are potential students that come to a community college and then say like, I'm not so sure whether I can actually afford, I have the time to actually enroll in a formal degree program. I might want to do something else. Well, let's give them choices. Let's give them choices. And we're working with the institutions together, hand in hand. They know us, we know them. And that allows us to actually pick up the students at the point where they have already indicated that they want to have a change in their life. And we giving them in partnership with institutions more options around that.

Eloy 16:19

Given your experience in, in Germany and now obviously in the U. S., what do you think the role of the employer should be in this marketplace?

Michael 16:30

To me, the simple answer is the employers need to get more active. They need to get in

Eloy 16:36

hmm.

Michael 16:37

and they need to understand that education is a strategic imperative for their success. And I think we're getting there. The good news is I think we're getting there, but as everything, there's a bit of trial and error, right? I mean, some employers are saying, okay, so I'm going to do some tuition reimbursement. Well, that doesn't make you a partner in education. You actually want to work with companies and with institutions, whether that's a college community college for your college or for profit company and say, can you help me design? On the one hand, a, an inflow of qualified talent to recruit into jobs that are desperately need. Give you an example, 600, 000 jobs for cybersecurity experts are open today in the United States alone. 600, 000. There is a not enough qualified people. You do not need a college degree to be a Cyber security expert. We can give you that. We can give you that qualification and you will almost certainly get a job. So that is one. And the other one is, you know, the old bad past period of this higher and fire kind of thing in in in American industry. I think people found out that this is actually an expensive way to run a company. So instead of hiring and firing people all the time, Good for lawyers. Exactly. A lot of people make money off this. But why don't I educate my workforce? Why don't I reskill and upskill them? AI is a perfect example. Why don't I give them an ability to actually, while they're working, To get the necessary skills to get to the next job in the company. I think people like Walmart's are leaving the way Amazon is leading the way. So I think we're seeing really good momentum.

Eloy 18:24

So back to Cengage. As you think about the innovations that are taking place, what excites you about the innovations that are taking place at Cengage? And how do you think they're shaping the way you think about your position in the marketplace?

Michael 18:42

So I think the, the thing I'm most excited about is we set out some five years ago on the path of what we call our education for employment strategy. So we said. We want to dedicate the majority of our new investment to businesses that help people get a tangible return on their investment. Not just education is good. Of course. I mean, it's like world peace. Of course, education is good. But education for employment as an investment that we need to recognize people are making an investment of money and their time. We want to give them a tangible return. I'm excited around that. I'm excited about that to go. We just acquired a company. I told you, I mean, in beautiful Madison, Wisconsin, we acquired a company here called Infosec that addresses. Cybersecurity work skills. So this is something that we are super excited about it, that we want to make a significant part of our overall profile meeting today. It's about 12 percent of the total revenue. We want to make it 30 to 40 percent of our total revenue. So very high growth ambition. And the second thing I'm, I'm I'm really excited about is you know, scaling technology solutions that are meaningfully helpful to students, not just the higher leading edge and AI. I think we've seen some very interesting applications of AI. We just launched a math tutor for students, particularly for students that were left behind in the pandemic and that have very hard time catching up. And we found great resonance. Now it's early days. We're talking about, you know, hundreds, not thousands and certainly not millions of students but we're seeing some really, really good results. So I'm excited about that.

Eloy 20:28

That sounds great. Michael, let me ask you a question. Given your experience in this marketplace, and, you know, listeners to the rant are people who are both in the education technology side, but also a lot of folks who are in the public education side and there's always this tension between... public investment public institutions, and the private sector and in particular, the motivations of private equity funders and, and other. For profit activities I've had this discussion with many people on this podcast, particularly when the U. S. Department of Education started to crack down on, on for profits. What would be your advice to, to people on both sides of this spectrum? How do you get to a place where the learner is at the center of what you're trying to support? And, and not, the, the various incentives that you get either on the private or the public sector.

Michael 21:34

My advice, Eloy, is... Let's move away from these simplistic headline grabbing simplifications around, you know, non for profit is good for profit is bad. I think we need to move to a point where we are. Willing to be held accountable for outcome as every institution, as every business should be right, which business in the real world, would you buy a product from that says, I don't care what the outcome of your use of the product is, you buy a car from me, but I don't care whether it runs or not. Like that is, that is a world that we should not be wanting to live in. So we are very, very committed and I think we all should be very committed. And then I hear people saying, yeah, but it's so hard to measure. No, it's not. So we published an outcomes report for our Sengage work business. And we said, we want to measure, did people get a job? How much money did they invest in actually getting the education that got them the job? What was their pay? Was it better than what they had before? And we published that outcome report and we've got to publish it. Every year, I think we're doing it yearly or maybe even like every six months. And and that is how we should be held accountable and that everybody that gives us money whether that's an investor in private equity Or whether that is one of our partners in the non for profit side I think we should be aligned around that and if we have an impact the positive impact On an outcome, then yes, we will actually be successful as a business. And I'm unapologetically for profit. That is one modality that works. You have run a non for profit public institutions. We have worked together in that way.

Eloy 23:14

hmm.

Michael 23:15

this public private partnership can work beautifully. And frankly, it's the strength of the American system.

Eloy 23:20

I agree, certainly, with your, with your last point. I mean, this is, this is about creating a healthy marketplace. How do we align the incentives and get everybody working together? There's plenty of good to be done, plenty of demand. And nobody can do it alone. So I'm hopeful. And we can build that kind of a healthy marketplace. I think that is what's unique about America, is the ability of all those players to be able to interact together. And when they do, and it does it well, then I think we have great outcomes.

Michael 23:52

Absolutely.

Eloy 23:53

So, as we begin to wrap up, let me ask you to put on your prediction hat, to pull out your crystal ball. You are a leader in the publishing industry. You've gotten to know it quite well. Where do you see... The publishing industry in America going over the next five years or let me put it this way Where would you like to see it go?

Michael 24:17

Well, where I would like to see it go is, is in keeping with the theme that we discussed here, which is a theme around impact and outcomes and really take accountability for the outcomes of the products that we put in the marketplace. I do think one of the prerequisites that we didn't talk about in the context of AI is we need to have a system that protects the intellectual property of our authors. I think there is a threat in AI, which is not very well understood and unfortunately was not part of the, the White House directive on AI, which is the, we could be in a world that piracy is the norm, not the not the exception. And that is a world where I think creativity is going to be punished. And I think it's not a world that we're going to be. Want to live in, so we are very fierce about the protection of the intellectual property of our authors, what they create, and that that doesn't get stolen and undermined by AI, but assuming that that is the case, then I think we can have an impact and frankly, an outsized impact at scale because we, unlike an institution, we don't serve just the students in, in, in the local neighborhood, we serve millions of students across the country, across the globe. Thank you. And we, I, I want us to be held accountable and I want us, our feet to be held to the fire of do we make a big difference in an individual's lives?

Eloy 25:48

Well on that note, making an improvement to every individual's life I want to say thanks michael for being willing to come on The podcast appreciate your leadership in the industry and look forward to continue to work with you

Michael 26:04

It is my pleasure. Thank you.

Eloy 26:06

All right, everyone. Thanks for joining me. I hope you've enjoyed my conversation with Michael Hansen, CEO of Cengage. I certainly appreciate his leadership and his willingness to be here on The Rant. Thanks for joining me on The Rant. And if you enjoyed this episode, hit the like button, leave us your comments. And to hear more episodes, subscribe to this YouTube channel and continue to follow us on your favorite podcast platform. Good to see you, everybody, and we'll be back with you soon. Take care.