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The Letter From: Industry Fragmentation (III): Coping Strategies

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("The Letter From" is on hiatus through December. This is an "encore presentation" from April 18, 2005 - before edbizbuzz came on the scene. Consider it an opportunity to judge my predictive capacity, an introduction to academia's dean of business strategy, and an application of his analytic approach to the school improvement industry.)

Consolidation strategies to overcome fragmentation in the school improvement industry were discussed last week. If structural factors foreclose consolidation, providers will need to develop coping strategies, accept sub-par returns, or exit. This not about market dominance, but provider success given fragmentation.

Today’s providers survived an investment climate of “nuclear winter” after the internet bubble burst (and spring may be some way off). Nine of their approaches to an environment of scarce capital are also described as ways of coping with fragmentation by Harvard Business School Prof. Michael Porter in Competitive Strategies (1980).

1. Tightly Managed Decentralization. “(Keep) individual operations small and as autonomous as possible. This approach is supported by tight central control and performance-oriented compensation for local managers.”

At the dawn of the Comprehensive School Reform Demonstration Program, nonprofit provider Modern Red Schoolhouse Institute chose to invest in intensive consultant training instead of a full time staff for implementation of its school model. Modern Red was able to build a larger and more diverse sore of human capital that it could expand, contract and deploy with demand. A single on-site manager, accountable for outcomes, could be supported by this national consultant cadre.

2. Formula Facilities.
“(Design) a standard facility, whether it be a plant or service establishment and (polish) to a science.”

To assure quality, this approach requires program offerings where staff discretion can be constrained by scripting their actions or automating their activities. If the term “facility” is used loosely, this is the strategy of the Success for All literacy program, SES provider Catapult Learning (previously Sylvan Education Solutions), teacher recruitment firm SearchSoft, and student information services provider SchoolNet.

3. Increased Value-Added “by providing more service with sale.”

For example, schools buy computers, but they want student learning. In this context, handheld computing devices are a commodity. With its m-Class DIBELS k-6 software, Wireless Generation offers devices integrated with the k-6 assessment used by 35 of 44 Reading First states. Embedding the devices in the teaching and learning process is “increased value-added.”

4. Specialization by Product, Segment, Customer, or Type of Order.

ExploreLearning offers only brief modular interactive simulations to support math teachers in grades 6-12 classrooms.
Community Education Partners simply provides school districts with education services for disruptive students. Platform Learning is engaged exclusively in the provision of SES to public schools.

8. A Focused Geographic Area.
“Even though a significant industry-wide share is out of reach or there are no national economies of scale (and perhaps even diseconomies), there maybe substantial economies in blanketing a given geographic area by concentrating facilities, marketing attention, and sales activity.”

National Heritage Academies is a great example of geographic specialization. While other EMO’s spread themselves across the country, with every state bringing a new regulatory regime, political environment, and remote site, it stayed focused on Michigan’s attractive charter school market.

9. Bare Bones/No Frills. “[I]ntense attention to ...low overhead, low-skilled employees, tight cost control, and attention to detail.”

No school improvement service provider can afford to have low-skilled employees. This aside, the local for- and non-profit tutoring groups now entering their districts’ SES markets dispense with frills. Operated by their owners, focused on details, and scrutinizing every expense, these small firms “enjoy” low overhead and low marketing costs. Because they are rooted in their communities, they are also able to take advantage of highly skilled staff with peculiar needs and attract the kind of students most likely to benefit from their approach to learning.

There are many routes to competitive advantage in a fragmented market but, if fragmentation is structural, consolidation is not one.

Next Week: Venture Capital and School Improvement.

Listen to this as a podcast here.

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