Introduction

In a world where educational inequality is ubiquitous, Khan Academy has emerged as a leading educational global nonprofit organization with over “40 class subjects”, “tutorials and practice problems”, “standardized test prep tools”, and “life planning tools” (1; Exhibit 1). What has separated Khan Academy as an online educational platform is their emphasis on an individualized learning experience. Created by Sal Khan, this organization strives to address the flaws that the “traditional model of education” possesses (3). Ultimately, Khan Academy envisions creating a systemic global change in education to solve the enormous inequality in education. By offering a “free, world-class education” for all, Khan Academy aims to help students pursue higher and better education that will lead to stronger employment opportunities in the future (4). Furthermore, Khan wants to provide lifelong opportunities for people to acquire new skills that help them adapt to automation in their work and contribute to “systemic global change” (2). While Khan Academy has grown exponentially to reach millions of users, the organization has faced multiple challenges — the need for financial resources, maintaining quality, scaling operations, recruiting and retaining people, and exemplifying impact have affected Khan Academy’s development (2). This has disrupted the balance for a shorter term focus and an ambitious vision that seeks to allow anyone to “achieve their potential” (4).

Strategic Recommendations

Khan Academy has established a unique positioning within the free online education industry. Through an examination of Porter’s Five Forces, it is evident that education suppliers hold relative weight, as the quality of their products and services determine customer usage (Exhibit 5). Other factors, including power of buyers and threat of new entrants, remain low; it’s clear that Khan Academy can continue strengthening their individual supplying power towards their buyers and competitors. Thus, given that Khan Academy has generated tremendous success for motivated learners through providing a plethora of academic material, we recommend that Khan Academy expands beyond their traditional revenue generation methods, organizational structures, and global outreach. It is our recommendation that Khan Academy restructures to a product based organization, build a for-profit arm with renewed focus on community fundraising, and focus on their core competencies in serviceable geographies. With a clear strategy backed by further resources, Sal Khan and Ginny Lee can maximize value captured for students, educators, and school systems around the globe.

Product Oriented Organizational Structure

Khan Academy’s current organizational structure has built upon their mission to provide accessible education to eager students. The global expansion results of their 2018 Strategic Plan has translated into Khan Academy being accessible from over 190 countries, providing education for teacher programming and (disadvantaged) students across K-12 learning topics and university-level prep. However, such rapid expansion has resulted in employees exclaiming that “there was always more [work] to be done” (15). Through creating a more structured organizational structure that divides employees into a product-based structure, employees would be able to get behind one central work purpose and one cohesive work stream. 

Currently, Khan Academy is structured as a function-based organization (Exhibit 2). Sal Khan operates as the CEO, Ginny Lee operates as the President and COO, and then eight other individuals head specific functions including finance, design, product management, content, etc. However, as the Khan Academy scales larger, such functions become increasingly more broad as they produce videos across multiple subjects and languages, partner with more institutions, and continue to develop their brand. A more product focused organizational structure with elements of geographical focus will help streamline work processes, resulting in less employee burnout and stronger focus. 

Through a product and service-based structure, Khan Academy employees are given a product to manage. Such products include educational videos, educational translation, technology functions, school partnerships, etc. This makes expanding and developing each specific product easier and also aligns each employee with one function rather than a multitude. Previously, Khan Academy employees spanned multiple functions without general focus, as evidenced when all employees spent 25% of their time working to develop products and services for the Longbeach Unified School District (14). Additionally, each product group would have specific support in the following academic areas: K-12 education, special curriculum like AP Course Content, standardized test preparation, and university level courses. This ensures each content, such as math or humanities, is specifically tailored towards specific levels of education. In separation from this nonprofit section of the organization, a new for-profit arm would exist to generate resources and bolster competitiveness with other Silicon Valley organizations.

Revenue Goals

Khan Academy’s goal is to reach $100 million in revenue by 2020, up from $52 million in 2017, with an ideal mix of 35% earned revenue and 65% contributed revenue (14). To accomplish and expand on this goal, Khan Academy must make two strategic moves.

Building a For-Profit Arm that Utilizes Horizontal Integration

Khan Academy must build out a separate for-profit generating arm that utilizes horizontal integration through acquisitions. Horizontal acquisitions allow the company to reduce competition while diversifying their product offerings. While the company has done acquisitions in the past (e.g. Duck Duck Moose), creating another branch of the company that specializes in revenue generating products and services would provide the company with a sustainable cash flow needed to make the company self-sustaining (6). To align this initiative with Khan Academy’s values of free, open access education, the company should look at acquiring teaching products and services that focus on building their institutional platforms. These products and services should relate to the distribution of Khan Academy courses or education, such as supplying learning tools and frameworks for highschools and universities to teach. Khan Academy should take a Resource Based View in targeting acquisitions, mainly focusing on efficient companies with no substitutes to create a sustainable competitive advantage.

In addition to generating a stable cash flow, building a for-profit arm enables the company to hire top talent. Khan Academy can’t compete against Silicon Valley’s compensation with their current structure and resources (9). However, generating profits from a for-profit arm would give Khan Academy the resources it needs to compete. A forecast of the company’s income statement (Exhibit 4) shows how earned revenue will become increasingly more significant to Khan Academy’s operations, and in order to realize Sal’s long term goals of creating a company that withstands the century, Khan Academy must reinvest their profits in finding and obtaining the best talent across the globe.

Leveraging a Dedicated User Base to Generate Greater Community Funding

Khan Academy needs to place more focus on community fundraising through increased awareness and marketing spend. As demonstrated by Wikipedia, community fundraising can be extremely impactful, and Khan Academy’s goal to increase community donations from $5 million in 2017 to $20 million in 2020 is only possible if they fundraise effectively (18). Khan Academy has 15 million monthly users which is a fraction of their serviceable available market and puts them in the early adopters or early majority phase of the adoption cycle. Users in these categories tend to be passionate about the product, and Khan Academy needs to take advantage of it. Deliberately asking for donations on every video and using large banners on the website would drive more attention from users to donate. Additionally, expressing donation sizes in a frame of reference, such as “donating a cost of a notebook”, would encourage regular users to donate to the company. Khan Academy’s user base recognizes and appreciates the service provided, and fundraising using more transparent and relatable marketing methods would enable the company to achieve its community fundraising goals without the cost of scaling the company.

Reinforce Core Competency through Global Outreach and School Partnership

To expand globally, Khan Academy should have a narrower focus towards their priority countries since they only have limited resources at hand to deal with challenges such as translation and country-specific content. In the short term, Khan Academy should continue implementing the two-pronged strategy (8), in which they hire experts and put more resources in priority markets while having the advocate program in the non-priority markets. Having a focus would help Khan Academy develop their sustainable competitive advantages and prevent Khan Academy from over-expanding. As Khan Academy reinforces their core competency — their capability to deliver high quality, thorough, and easily accessible lessons — in the targeting countries, they would get more resources and funds to prioritize non-target countries. This leads to a virtuous cycle resulting in more education for more students across the globe (Exhibit 3). While employing volunteers in the advocate program might lead to some risks for the quality in the non-prioritized countries, the competitive advantages that Khan would develop by focusing on priority countries outweigh the potential quality concerns. In the long run, the concern of being narrow will no longer be an issue as Khan Academy expands to the extent that they can target all the markets with the sustainable competitive advantages they’ve built. 

To reach out to more students in priority countries, Khan Academy should launch more school partnerships, in which the partner schools would integrate Khan Academy materials as the core curriculum (7). By working directly with local schools in need of resources, Khan Academy can provide the necessary tools for teachers to successfully teach subjects. Additionally, they’ll have leverage in reaching out to more students since the classroom is where students spend most of their time learning. However, school partnerships might not be easily scalable due to the amount of funding needed. Addressing the issue of high costs for the partner schools, we recommend Khan Academy to initiate co-partnerships between the partner school and the donors such as Microsoft to sponsor the equipment and software needed for the school partnership. Once Khan Academy successfully fosters relationships with schools and governments, these institutional relationships create an economic moat for Khan Academy to maintain a competitive advantage. The institutional relationships strengthen Khan Academy’s core competency that helps them better bind their existing business and appeal to more international students.

Conclusion

Khan Academy’s struggle between building a short term foundation and their long term aspirations has stunted the company’s global expansion and steadily increased pressure felt by employees. However, by creating a dynamic organizational structure that cultivates focus and divides work, raising revenue through for-profit and enhanced community fundraising methods, and strengthening core competency through school partnerships in global outreach, Khan Academy can meet their short-term goals while simultaneously advancing their long-term agenda. While Khan Academy is extremely ambitious in their goals and is eager to grow quickly, applying our recommendations will give Khan Academy the structure it needs to achieve its mission of transforming global society through universal free education.