The Letter From: The School Improvement Industry’s Demand Side for SYs 2009 and 2010
The Bottom Line
If you are a school improvement provider…. School Year (SY) 2009 will probably be more like SY 2008 than SY 2010. States and districts will behave much as last year, holding off on difficult decisions with market changing potential until after No Child Left Behind is reauthorized some many months following the Presidential election. This is not a time for management to make bold moves with much material risk for the company. It is time to consider: the 80/20 rule – and dropping the costliest customers, growing intensively with or near the best customers, creating low-cost growth options, and looking for federal grants and other forms of funding to maintain and build human and intellectual capital, rather than laying off staff.
If you are an investor…. Other things being equal, SY 2009 will not be the time to put funds into the typical school improvement provider. Over the long haul the market for products and services to improve teaching and learning based on student and program evaluation will grow. But today, the balkanization of demand for school improvement by state and district, the disproportionate impact of political risk on the school improvement marketplace (start here), and the extreme fragmentation of school improvement providers (start here), make betting on any one firm extremely risky.
It may be a good time to start investigating investments to be made in SY 2010, and it is probably a good time for major publishers to create acquisition options on the cheap. Ironically, the best bet on a growing school improvement market to lay today is with the major publishers. If demand for school improvement turns up, publishers will buy surviving providers or otherwise capitalize on the positive trend. If not, the publishers current business model will remain an attractive cash cow.
The market for school improvement products services and programs is a market for doing things differently from the last century. It is based first on the No Child Left Behind Act’s Adequate Yearly Progress (AYP) provisions. These place schools and districts in a state of fear intended to motivates changes in practice towards meeting the needs of actual, factual poor performing students, and away from the mythical average student. The result has been some shift in the instructional budgets away from generic textbooks and training to products, services and programs that at least claim to improve student performance on state standardized tests.
Three related factors have slowed the transition.
First, public education's traditional institutions lack the political capacity to change much faster than they have. Change will alter the distribution of power and rewards in ways that favor those on the front lines of education rather than headquarters: principals become more important than school bards or superintendents; individual teachers become more important than their union leaders; program developers become more important than program marketers. Whether the institution is a school district, a teachers union, or a publisher, those in power will not simply hand it over. And so from the day NCLB passed, these institutions have resisted implementation by all available means.
Second, money. There is little reason to doubt that existing instructional budgets, augmented by efficiencies in school district support operations, are adequate to support school improvement. But this implies the capacity to change quickly. In the real world, additional funding was necessary, and after the Republicans gained control of the Congress, President Bush backed off his promise of higher levels of support to Senator Kennedy and Representative Miller.
Third, NCLB’s scientifically based research (SBR) provisions should have protected truly effective providers from the marketing power of K-12’s dominant players. Few investors put money into the new school improvement providers betting on only marginal changes in curriculum and instructional purchasing following NCLB. Yes, they believed in AYP’s power to improve the nature of demand, but they counted on the law’s SBR provisions to protect their new firms from the competitive advantage of major publisher’s control of k-12 marketing channels.
This assessment proved to be based on the false assumption that the federal Department of Education had the capacity to define and regulate program quality fairly quickly. In fact, SBR has been irrelevant to school improvement providers, except to the extent that it was misused by one Department of Education staff member to support the dominant players in Reading First, and picked up by state education agencies for its potential to kill off Supplementary Educational Service providers.
As SY 2009 approaches, those who have resisted change must be heartened. NCLB I is bound to remain law until SY 2010, but the school improvement industry’s SY 2009 experience will almost certainly be affected by the Presidential decision.
The Democrats seem bound to tighten their control over the House and Senate. Overall, an Obama Administration implies a somewhat higher level of Title I funding than we see today. Any NCLB II signed by President Obama, will make it much easier for schools and districts to make AYP and avoid the sanctions of NCLB I. That will reduce the fear motivating school improvement purchases, but so many schools are heading into school improvement or restructuring status that unless NCLB is stripped of any semblance of accountability, the school improvement industry will survive. What may be more important is the expectation that the Department of Education will be far more favorably disposed to state and district education agency waiver requests thanit was under Secretaries Paige or Spellings.
If Senator McCain is elected, it is more likely that his Administration will try to maintain something closer to today’s AYP provisions. This price of Congressional acceptance is bound to be higher Title I funding than a President McCain might otherwise prefer. This Department of Education’s approach to AYP regulation and waivers will be closer to that under President Bush. The overall outcome is uncertain, but the addressable school improvement market is likely to be marginally larger than under Obama.
That’s the good news on the federal front. The bad news is that whoever becomes President, expect no significant movement to make SBR a meaningful barrier to market entry. My sense is that it is beyond the candidates' interest today, and unless education advisors in one or another campaign takes an interest in it soon, a new Administration will not be competent to deal with the matter during or after the transition. This dooms most school improvement providers to marginal profitability, and kills any real hope of substantial private sector investment in truly effective educational programming. And absent such investment, I have a hard time seeing how the nation can raise student achievement dramatically on any time frame.
If politics is the art of the possible, economics bounds the definition. Looking to state and local budgets, we see nothing but trouble for the next several years. Overall, tax revenues are heading down. K-12 education already consumes the plurality of funding. It will not obtain much more as a percentage of total budgets, in absolute dollars, or adjusted for inflation. In many cases public education it is likely to receive less.
Nevertheless, absent something like NCLB I, the pressure on the system is not likely to force political leaders to make the difficult decisions that reshape institutions. Expect instead the kinds of marginal changes that leave the current distribution of power and rewards in place – across the board cuts, preying on the least powerful actors in the system, further concentrations of power at the center of these institutions, etc, etc.
For any firm currently in operation, the best advice about any coming business year is usually that it will be only marginally different from the last and the next. That’s more or less true of the school improvement industry today. The important questions are the direction of trends and the prospects for change. Here the answers must be negative and dim. And about the only people who care about this are school improvement providers.
Marc Dean Millot is the editor of School Improvement Industry Week and K-12 Leads and Youth Service Markets Report. His firm provides independent information and advisory services to business, government and research organizations in public education.