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The Benefits to Hiring a For-Profit Management Company

As the debate over for-profit management companies rages on, we wanted to draw your attention to some research that came out on the topic.

Large studies that include usable data sets are few and far between. For instance, a 2011 study by NAPCS yielded an informative 3-year snap shot of EMOs and CMOs by state, but undertaking the same thing every year would require a lot of time from a staff that is already very busy. The unintended danger here is that people then use outdated or incomplete studies to target the for-profit management community as a whole, when in reality it is only a few bad apples that deserve harsh criticism.

Instead of getting lost in the weeds and citing hearsay statistics, why not zoom back out and take a look at theory. Regardless of how for-profits operate today, perhaps we should focus on why they should operate in the first place. Instead of criticizing the performance of some, we should probably concentrate on what they should be doing for the education sector.

A new book does just that. Private Enterprise and Public Education, edited by Frederick M. Hess and Michael B. Horn, is a collection of ten essays and a conclusion by the editors on the topic of education entrepreneurship.

The essays and their authors are below:

  1. “More than Meets the Eye: The Politics of For-Profits in Education” by Andrew P. Kelly
  2. “The Costs and Benefits of Nonprofit and For-Profit Status: Perspectives from Executives and Entrepreneurs” by Mickey Muldoon
  3. “Crossing to the Dark Side? An Interview-Based Comparison of Traditional and For-Profit Higher Education” by Ben Wildavsky
  4. “Unequal Access: Hidden Barriers to Achieving Both Quality and Profit in Early Care and Education” by Todd Grindal
  5. “Beyond Good and Evil: Understanding the Role of For-Profits in Education Through the Theories of Disruptive Innovation” by Michael B. Horn
  6. “Odd Man Out: How Government Supports Private Sector Innovation, Except in Education” by John Bailey
  7. “The Role of For-Profits in K-12 Online Learning” by Michael B. Horn
  8. “Philanthropic Dollars in Commercial Markets: Blessing or Curse?” by Stacey Childress and Tamara Butler Battaglino
  9. “Between Efficiency and Effectiveness: Evaluation in For-Profit Education Organizations” by Matthew Riggan
  10. “Would Steve Jobs Have Been a Hero if He Had Built an Education Company Every Bit as Good as Apple?” by Chris Whittle

We haven’t had a chance to read all the way through it, but the essays themselves look inviting. What we like most about the titles, at least, is that this publication does not appear to be used as a soap box to attack management companies, nor is it being used as an opportunity to ceremoniously tout them. Rather, we expect the astute reader to glean a lot of well-researched pros and cons to the education management niche.

The conclusion of this volume was enlightening. The “pros” were a lot of the same things we’ve read before, but it was interesting to see that the “cons” were basically flip-sides of the “pros.”

For-profit Pros:

  • Ability to attract capital: they don’t “suck tax dollars away” from districts, they bring investor capital into districts
  • Ability to attract talent: compensation opportunities, bonuses, and even stock options can incentivize education
  • Ability to scale: extra capital and flexibility allows a lot of new work to be done where government and non-profits don’t focus (e.g. online and blended learning)
  • Incentive to serve the customer, innovate, and boost productivity: where would you rather go, FedEx/UPS or the Post Office? (ok, this is our analogy, but you get the point)

For-profit Cons:

  • Tendency to focus on customer needs can ignore important educational goals in favor of something else
  • Absent the proper legislation and policies, scaling can present a serious problem
  • Little incentive for independent evaluation

In order to make sure that those flip-sides don’t materialize, standards and policies must be in place to keep for-profits from running amok. As long as those standards and policies are in place, the benefits are attractive.

Michael Horn, one of the editors, defends for-profit management companies against those whose knee jerk is to dismiss them altogether. According to Horn, their unique strengths that they bring to the table and the ability of public education to play competing companies off one another makes for-profit managers an asset rather than a liability. Competition is, after all, one of the central tenets of market capitalism, and education is one of the last public sectors to take advantage of it (which should be covered in Essay #6).

Horn said it best in something from Forbes last week:

“Indeed, the charge that for-profits are only about making money off the backs of kids doesn’t make much sense. Sure, for-profits certainly want to make money. No surprise there. But to make money, they need to sell products and services. To do that successfully, there have to be willing buyers on the other end of that transaction. If buyers find their products to be of no value, then the companies won’t make money, which gives them an incentive to fulfill the jobs to be done of their customers and build and deliver great products and services.”

“That said, because laws and regulations govern public education and the government is the ultimate customer for for-profits in public education, policy shapes demand. One of our big conclusions then is that if we have sensible policies and quality control mechanisms that foster smart demand, for-profits can indeed be a force for good.”

Horn says that the argument over for-profit vs. non-profit is the wrong argument to be having. Our first priority shouldn’t be “Who is educating our kids?” because we’ll get caught up in arguments that have proven to be circular. Our first priority should be “What do we want our kids to learn and what kind of standards should be in place to determine who is best at doing it?” That will help us decide who will be best at educating our kids, instead of who already is and whether that is a good idea or not.

If this sounds a lot like Common Core, you’re not far off. There are plenty of educators and policy makers out there who are quickly losing interest with the new standards. The reasons are variegated, but if the Core fails we won’t possess the tool we need to measure students against one another across district and state lines. This means the circular arguments about “who” educates our kids will continue.

Of course, the “who” is just as important as “how much,” and that is an issue that will have to be resolved sooner rather than later. School choice has been shown to be tremendously cost effective for states, whether it be charter schools or vouchers, since both are cheaper than the traditional per pupil funding rates. Not just that, but with capital outlay funding trickling out of state coffers, growing districts need charter schools to absorb growth, even if they hate the idea of losing kids to them.

The bottom line (no pun intended) is that until public education is a business, and until it starts thinking about itself as a business, it will continue to be a failing one.


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