Udacity and the evolving supply chain for highly technical labor

Udacity recognized an inefficiency in the supply chain for highly technical labor. Can it be the upstream supplier of talent that 21st-century firms need to stay competitive?

Udacity, the online education company, recognized an inefficiency in the supply chain for highly technical labor that many firms face today. This inefficiency is rooted in the existing upstream suppliers of that labor (e.g. universities) and has been exacerbated by the increasing digitalization of the workforce. In 2013, Udacity purposefully pivoted to a strategy that explicitly addressed this inefficiency by offering alternative education programs and credentials that cut the lead time in the supply chain for highly technical talent significantly.

Context: Digitalization and “Skill-Biased Technical Change”
Nearly a decade ago, Harvard labor economists Claudia Goldin and Larry Katz popularized a model called “skill-biased technical change” that helped explain why returns to labor in some parts of the labor market increase more than others [1]. As firms innovate and develop products and services that leverage advanced technical methods to stay competitive and grow, the relative importance of technically trained workers rises commensurately. The “technical-change” that has taken place over the past 30 years has prompted firms to increasingly demand labor that is highly skilled – particularly in terms of digital skills. The upshot is that the price of labor with the “right” technical skills is becoming relatively more expensive for firms.

Take for example artificial intelligence and machine learning specialists – a highly technical occupation experiencing impressive demand today (growth in job postings for these positions was up 16% from the previous year in 2016) [2]. When many firms believe it’s a strategic necessity to acquire AI/machine learning specialists and the pool of workers that have that specialized skill set is limited, firms will compete with each other to acquire that talent. The outcome of this competition is higher compensation for AI/machine learning specialists and higher labor expenses for firms.

The Challenge Firms Face with Their Supply Chains for Labor
Why is there a dearth of highly trained technical talent? In large part, because the lead times in the “supply chains for labor” that firms face are incredibly long. Human capital is similar to physical goods in that it needs to be sourced and procured in a way that aligns with the strategic aims of the firm. Any firm that employs workers has a “supply chain for labor” in the same way that a firm has a supply chain for the products it produces. When a firm uses this supply chain “lens” to think about its pipeline of human capital it can reap competitive benefits [3].

But why the long lead times for technical talent? In a large part, it comes back to the upstream suppliers of that technical talent: colleges and universities. The number of graduate degree programs focusing on AI/machine learning methods is limited, and where they do exist the time from acceptance to graduation is typically over two years. With only one type of upstream supplier of AI/machine learning specialists, there is a 2-3-year lag from when the “order” is put out into the labor market (i.e. the increased hiring demand) to when it can be “filled” by the upstream supplier (i.e. graduates of programs).

Udacity’s Insight and Its Shorter-Term Strategy
How could this 2-3-year lead time be cut down? Enter Udacity.

The challenge that Udacity faced in its early days was figuring out a profitable business model that supported its massive online course products [4]. What if realized over the past few years is that there was an opportunity to essentially be a more efficient upstream supplier in the supply chain for highly technical labor and, in doing so, offer real value to firms, not just workers.

Starting in 2013, Udacity began to offer a fast way to educate highly skilled workers in the particular skills that firms demanded [5]. Now, instead of waiting 2-3 years for the next graduating class of one of the few official degree-granting programs, a firm looking for highly technical labor could source talent directly from the graduating ranks of Udacity’s programs and reap the associated competitive advantages much quicker (conditional on Udacity’s education programs being similar in quality to those of official degree-granting programs). Udacity’s “Nanodegrees” – a form of certification that doesn’t meet official US degree standards but is increasingly recognized by employers as an indication of a quality education – takes only 6-12 months to complete. Udacity’s current AI Engineer Nanodegree takes 9 months to complete a total cost of $2,400.

Thinking Ahead: Udacity’s Longer-Term Strategy
As highly technical labor is increasingly demanded by firms because of digitalization (and as those firms increasingly apply the supply chain “lens” to their human resource needs), Udacity should focus on both innovating with its education programs to further cut down lead times and securing relationships with firms downstream the supply chain for highly technical labor.

Questions That Remain…
Does Udacity’s value proposition (as outlined above) only make sense for certain types of skilled labor? How should Udacity think about which skillsets or occupations to focus on moving forward?



[1] Goldin, Claudia and Katz, Lawrence. “The race between education and technology” Belknap Press of Harvard University Press. 2008.

[2] “The Quant Crunch” Published by Burning Glass Technologies. November 2017.

[3] Fuller, Joseph. “Bridge the Gap” Published by Accenture, Burning Glass Technologies, and Harvard Business School. November 2014.

[4] Gans, Joshua “The Disruption Dilemma” MIT Press. 2016.

[5] Farhad, Manjoo “Udacity Says It Can Teach Tech Skills to Millions, and Fast” The New York Times. September 16, 2015.


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Student comments on Udacity and the evolving supply chain for highly technical labor

  1. I found this to be a fascinating read because it captures the powerful trend that is reshaping the higher education market and the broader labor supply chain.

    Due to rapid advancement of technology and therefore the rapid changes of skilled labor need, qualified candidates are becoming ever more scare. A clear evidence of this trend can be found in the rapidly improving salary packages of engineering talents in the technology sector. Not only are these packages improving rapidly but it is also not uncommon to hear that tech giants are acquiring entire start-ups to get their hands on the most thought after human talents.

    In terms of Udacity’s approach, I do agree that there’s tremendous amount of value created in shorten the 2 to 3 years training cycle down to 6 to 12 months and in the fact that these online programs cost quite a bit less than their traditional counterparts. However, I believe a major issue here is the quality of these Udacity trained personnel vs. others from more traditional schooling backgrounds. Due to the lack of hands-on learning and social interactions, it is highly unlikely that the online only option would become a meaningful replacement to traditional schools. Therefore, I believe it would be very interesting to envision a blended approach where platforms like Udacity can play their part to spread quality teachings while offline classrooms can be turned into project based learning arenas.

  2. I enjoyed reading this article and am energized to see how the highly technical labor market will change in the next two years. This has the potential to more effectively help traditionally under-served populations gain education that will allow them to pursue better economic opportunity.

    Additionally, I’m curious about how this will impact the traditional four year engineering degree program. There are instances, for example the chemical engineering program at the University of Michigan, where the curriculum is highly theoretical and therefore true application based learning happens via internships. Will these programs ultimately replace four year degrees in certain fields or be treated more as a supplemental education? The answer to that question will probably depend on how employers needs and perceptions changes overtime.

  3. Very thoughtful article, Chris, and I assume somewhat scary for educational administrators at traditional universities to read. I wouldn’t be surprised if you see schools responding to programs like Udacity’s with more bespoke degree offerings (e.g., similar to MIT’s 10 month masters program in supply chain management). I worry about the steps these universities will take to undermine the credibility of new programs such as Udacity’s, and poach potential candidates.

    I’m curious to see how i) job placement rates among Udacity graduates actually fare and ii) employers evaluate the competence of those graduates. Given the tightness of these markets, I would expect the placement is quite strong today. If I was Udacity I´d continually focus on those specialties for which the labor market is tightest and try to remain ahead of the universities in terms of their ability to go-to-market with degree program(s).

    Over time, I also wouldn’t be surprised to see companies like the FANGs starting internal universities like this to better control the market for advanced talent. Perhaps Udacity could migrate to an employer-based training offering over time if they are looking to get more leverage out of their existing intellectual capital.

  4. Very interesting to see how Udacity is serving as the intermediary of supply and demand. To be successful in this position, it will be essential that they are indeed sourcing the appropriate talent and training them effectively. I am curious to learn about what qualifications (if any) Udacity has for its talent. In addition, I wonder whether this is even the most efficient solution to this challenge, as it relies on talent self-selecting into Udacity. I have seen a number of states (such as Indiana) implementing more technical skill-centric programs at the high school level. What’s particularly interesting about some of these programs is that they are funded by major advanced manufacturing, logistics, and technology firms who are desperate for the talent and willing to put their money where there mouth is to create the pipeline they need. There is certainly space for models, though, and I’m excited to see where Udacity goes with this!

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