Sunday, May 30, 2010

Time to Face the Ugly Truth


Imagine you’re an analyst hired by the C.E.O. of a 130-year old company to advise him on how to turn the company around in light of this alarming data:

• In 1960, the company had approximately 13,000 franchises around the country and a customer base of 5.2 million.
• By 2000, those numbers had fallen off precipitously: The company now has 8600 franchises and only 2.6 million customers.
• By 2010, it lost another 1600 franchises and an additional 20% of its customer base.

As best you can tell, there are three issues driving these numbers:

• In 1960, this company was one of the few privately held companies in its field. Over the last decades, a plethora of new privately supported ventures and new public initiatives have made the competition much tougher.
• Prior to 1960, the company was able to pull its best employees from a training center that didn’t charge the company for their training. Now the company must employ independent contractors who demand higher wages and who must be trained at company expense to attain the same skill set as the previous base.
• Each franchisee must invest heavily in buildings and infrastructure to deliver its product. Unfortunately, many of these franchises are now surrounded by customers unable to pay retail price because of changing demographics. The businesses are now too far away from the customers.

“What has the company done to address its dwindling market share?”, you ask.

“We’ve counseled our franchises to look for ways to raise capital to improve their buildings and hire better employees” says the company C.E.O, fidgeting. “We’ve also suggested to keep their prices low and give discount pricing to those who might need it so as to keep brand loyalty.”

“That doesn’t sound like a winning formula”, you remark. “How can you reasonably expect these franchises to raise revenue for capital improvements when they can’t collect full freight for goods and services? 



"Let me ask it differently” you say. “What has the company done to help the franchises?” “Well”, the C.E.O. says hesitatingly, we’ve created a national association of these franchises, and we have an annual convention to swap good ideas and conduct research that measures how we’re doing.

“It looks like your research says it's been a bad fifty years” you say. " Do we have a new business model? Have we tried to re-organize the way we do things? Or are we still pretty much delivering it the way we did fifty years ago?

“Uh… We've added some technology, but the business model is the same”.



It would be hard to imagine a company in the Fortune 500 operating this way. Several C.E.O's would have been fired long before this latest CEO hired you to be his analyst! His company is crumbling and yet he has no business plan, no plan for his franchises to re-structure, re-locate or try something new.

But this is exactly the state of Catholic K-12 education in this country. From our peak enrollments in the early 1960’s, we’ve lost more than 60% of our student population and closed 6,000 of our schools. In the last ten years alone, we’ve lost 1600 of those schools and 20% of our student population. (NCEA, Annual Statistical Report on Schools, 2009) It’s an absolute crisis—and yet, we seem resigned to allow Darwinian evolution to take its course.

I have three proposals for re-inventing ourselves:

1) First, abolish the pre-K-8 elementary school structure. Kids are beginning in our schools at the age of three or four, which means by the time they get to 6th grade, they’ve been there as long as 8th graders who used to begin in kindergarten. They’re itching for something new! Coupled with the fact that our K-12 or 7-12 competition leverages the athletic fields, libraries, science labs and prestige of their high schools to attract incoming 7th graders and our elementary schools simply can’t compete.

Instead, create Catholic middle schools in grades 7-8 or 6-8 and make Catholic elementary schools preK-5 or preK-6. Or if building a new middle school is too expensive, move the seventh and eighth graders into the high school and make it a 7-12 institution. Either of these options would make the Catholic school much more attractive to sixth and seventh graders, which is where most of the attrition occurs.

2) Build new schools in high growth areas, regardless of their effect on neighboring schools. In my diocese there are two mega-parishes on the north and south end of town without schools, surrounded by declining parishes with schools. As painful as it is to do so, the long-term health of Catholic education depends upon putting our schools in the right spot to attract the most families and then allowing God’s providence to take care of what transpires. Otherwise, in the name of protecting institutions, we end up ministering to fewer and fewer families in the aggregate, and our schools close, one at a time.

3) We must become more entrepreneurial. We must hire first tier business managers with market sense and savvy. We cannot expect over-taxed principals, most with no formal business training, to lead our schools in this way. If a school cannot afford such a person, schools should share resources and hire a talented person to help run 2-3 schools at a time. The pool of talent for this may be broader than we think if we look for successful businessmen looking for a second career who would be interested in serving the Church.

As an example of this entrepreneurial leadership, we should be giving out much more financial aid than we are. According to U.S. News and World Report, there are only 46 colleges in the United States that say they meet the “full financial needs of all their students.” I propose--radically-- that all Catholic schools do so. But wait, this isn’t touchy feely idealism! If we have seats that are empty, we’re much better off filling them with students who pay 50% tuition than keeping the seats empty and getting nothing. This is the same principle upon which airlines discount their seats for less traveled flights.

I can think of other examples for exploration along these lines: Have we considered leasing buses to transport kids to our school to drive up enrollments? How about out-sourcing cafeteria service? What about purchasing textbooks on line? Does our spirit store deliver product in an efficient way, thereby helping us brand the school? Is our webpage sharp, up to date and an essential part of our marketing plan? Have we considered signing bonuses to draw talent into our school despite meager annual salaries? Have we negotiated with empty convents or rectories to provide low-cost housing to young employees?

“The definition of insanity, ” someone said, “is doing the same thing over and over and expecting a different result.” We must face the ugly truth and begin to act sanely.

6 comments:

Al said...

Having worked with Catholic schools nationally and now with PJPII HS in Hyannis, MA, I couldn't agree with you more. I also believe that the parish-school model is outdated. Over burdened pastors, dwindling collections, no formal training in running a school, et al combine, in far too many cases, to produce disastrous results
Many (maybe most!) Catholic school leaders believe that a couple of ads in the local newspapers (with dwindling readership) is what marketing is all about. Others, including superintendents, fail to grasp that 80-90% of the school's income comes from admissions and advancement. Yet, that's where the first cuts are made. Can you imagine a business leader cutting R&D or sales?

Anonymous said...

Well, much of what you say is spot on however what you do ignore is the quality of the service being provided and the economy.

Let's face it, the Catholic Church's brand has been seriously damaged from within over the last decade or more and that hurst parochial schools hard. At the same time, most towns are pumping 50% of their budgets into public schools without great ROI. A good many on the parents of public school kids are also public school products who have an outdated opinion of parochial schools and haven't (or think they don't) the financial means to pay for private educations.

The forumula for success is not hard...you need a multi year business plan that goes out of its way to establish value, reinforce it to its constituent parents and target the message to the dissatisfied public school parents. You only need to draw a small percentage of them to fill your classrooms however, you have to work hard to retain the base you have and that is why the church in general needs to clean up its act.

Jared Dees said...

Faustin,

This is really an excellent analogy that provides a great perspective on the present state of things. Catholic schools will indeed need to take on this mindset if they are going to surveive. Change is needed and it is needed decades ago.

I wonder if the principle of subisiarity applies here. As you know, there is no Catholic school CEO and individual schools are not franchises at all, but independent and unique institutions within the context of a certain diocese and often a certain parish. The “national association” acts independently of the “franchisees” and has a business model all to itself.

In response to your proposals:
1) I’ve heard this suggestion before and it makes sense, but are there any examples of this yet? There are certainly examples of this model working well in private schools. Are you proposaing that the parochial school model no longer works?

2) I think this is a great idea too, but the centerpiece of this change is the pastor. Would the pastor be interested in starting a school? More importantly, would he be willing to lead a multi-million dollar campaign to fund the project? Addressing the Anonymous comment above, would he be willing to promote Catholic education in such a way that parishioners would see sending their children to Catholic schools as a part of their own personal identity as Catholic parents?

3) I don’t know how schools can survive without development directors. To me this is as important as any teacher in the building. I like your idea of recruiting “2nd career” businesswomen and businessmen. I assume that by 2nd career you mean, “willing to take a pay cut.” I think, however, that you don’t need to recruit business school graduates to find someone who can sell your story. There is no need for Catholic schools to be caught up in elaborate strategic plans, giving campaigns, branding, and other confusing lingo. Get someone who can share your story and know how to ask for money.

Great thoughts – I’m interested to see where this conversation goes.

Anonymous said...

Interesting comments Jared. I too was wondering about the subsidiary analogy. In the grander sense (in the US), I guess this would need to start at the Dioceses level. They own the franshise and each parish with a school becomes part of the grander plan. Not too many parishes could afford professional Business Managers (you might be lucky and get a formerly working mom or a retiree) but the Dioceses would have the means to have such a resource oversee the franchisees. McDonalds doesn't leave that up to each restaurant, they very carefully craft the brand and shape the value prop (hard to say that about McDonald's food)...

Faustin N. Weber said...

Jared,

I admit the analogy doesn't hold completely--there is no CEO over schools, but I think it's helpful to discuss in business terms to point out how utterly inadequate our response to the crisis of Catholic education has been.

As to anonymous' comment that the sexual misconduct of priests accelerated the demise, I think that's clearly true but I think the declining trends preceded that crisis---the downward decline was already set.

No, I don't believe parochial education is the model of the future. It worked well for us for 100+ years, but regional schools will have to carry us in the future.

Anonymous said...

Jared,

I actually never mentioned the sexual misconduct by priests, per se. Your interpretation of that does sort of drive home my point...the brand was hurt long before the scandals broke, now it is like pouring gasoline on fire.

We are asking parents to trust their kids to us and it is going to take a coordinated effort to rebuild the brand. We need to drive home the value prop to overcome the stigma(s).