Struggling Edison 'Reversioning' Its School Expertise

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Edison Schools Inc. is now available in a handy take-home version.

Business PageFor school districts that aren't interested in hiring the beleaguered company to manage schools, Edison is rolling out a new line of services revolving around student assessment, professional development, and what it calls "achievement management systems."

The new division of the New York City-based company is called Edison Affiliates. It is targeted at districts with 1,000 to 10,000 students that may be too small or otherwise uninterested in the company's traditional business of contract management.

For Edison, the new market is a chance to sell services with a potentially higher profit margin and lower likelihood for political conflict than its primary product. The company has been hard hit in the last year by defecting clients, a swooning stock price, and a tumultuous situation in Philadelphia, where it began running 20 schools this fall. Not to mention that it lost $86 million last fiscal year and has never turned a profit in its 10-year history. ("Edison Buffeted by Probe, Loss of Contracts," Sept. 4, 2002.)

The company manages 150 traditional public schools and charter schools serving 82,000 students this academic year. It is not giving up on that part of its business, and has said it expects to begin showing a profit by next summer. But the Affiliates program is an opportunity to reach a whole new market of districts that have been ill-suited or unwilling to turn over any of their schools to private managers.

"There was a real interest in leveraging some of the intellectual property we have developed for our managed schools," said James M. Howland, Edison's chief development officer and the leader of the new business initiative.

Edison lists four components of the Affiliates package. First is what the company calls "benchmark assessments," 45-minute online tests in reading and mathematics that students in participating districts would take once a month. The tests would be customized to each state's academic-content standards and accountability program.

"Achievement management systems" represent the second part, and that includes a variety of ways of reporting performance on the monthly assessments to teachers and to parents. It also involves Edison in helping districts set performance goals.

"We've got a lot of systems in Edison schools that have been instrumental in driving achievement gains, and we're going to be able to provide affiliates with those same online management tools," said Mr. Howland, who came to Edison last year after working for such companies as American Express and the management-consulting firm McKinsey & Co.

The other parts of the Edison Affiliates package are professional development, such as allowing educators in affiliated schools to attend Edison's training workshops, and the "achievement adviser," an Edison staff member who will check in on the affiliates periodically to implement the system.

A typical visit by the achievement adviser, according to the Affiliates Web site, would include meeting with the assistant superintendent for curriculum to go over monthly achievement results, followed by a school visit to help teachers adjust to the system, and then an afternoon training session.

Edison's curriculum, heavy on instruction in the basics and on technology, is not part of the package. The company plans to charge roughly 1 percent of a district's annual operating budget for the Affiliates services.

Edison has been tweaking the program in focus groups for two years, and it has begun a major sales drive in the past two months. Initially, it will focus on about a dozen large states, Mr. Howland said, including California, Texas, Illinois, and Georgia.

A Different Branch

Just who would hire Edison for a new service at a time when the company is facing so many troubles? The 1,900-student Sheridan, Colo., school district was the first to sign up, starting a pilot test of the Affiliates program in July. Superintendent Judy Kary sees it as a relatively inexpensive way to bring in a major support system "that we could not afford on our own."

"We have all our focus on student achievement, and the achievement adviser comes in several days a month and is really helping us develop a strategic plan," she said.

The district is still preparing for the benchmark assessment system, but once it is in place, teachers will be able to see where an individual student is having problems or even whether a math concept is tripping up a whole class. Parents will be able to log on to a Web site and check on their children's progress.

Sheridan is getting a discount as an early adopter. The program will cost the district about $75,000 out of an $18 million state funding allocation this year, or about six-tenths of 1 percent of the budget, Ms. Kary said.

Sheridan administrators and school board members were aware of Edison's recent difficulties, she added, but that didn't cause any concern.

"We're really dealing with a different branch of the organization," Ms. Kary said.

If more small school districts are similarly enthusiastic, Edison could reap a profitable return. The company told investors in August that the program could grow from 2,000 students this year to 400,000 by the 2005-06 school year. The company may bring a few more districts online this school year, but the sales effort is targeting the addition of as many as 25 districts for participation by next September, Mr. Howland said.

"This has the potential to be a growing, vibrant business," said Trace Urdan, an analyst who tracks Edison for ThinkEquity Partners, a Minneapolis-based investment firm. "They have some real assets they have developed in their schools."

Peter Stokes, the executive vice president of Eduventures Inc., a Boston research firm, says Edison is opening up a whole new revenue stream without a lot of new costs.

"They're 'reversioning,' and this increases the likelihood of Edison becoming a sustainable business," he said.

A Jump Start

But while Edison promotes the new service as something unlike anything currently available, both analysts say the company is stepping into a nascent market with a variety of competitors that are seeking to sell assessment, technology, and management tools to schools.

They include NCS Pearson, the testing and applications division of the educational publisher Pearson Inc.; Plato Learning Inc., a Bloomington, Minn.-based provider of online assessment and "courseware" for schools and colleges; and Princeton Review Inc., whose service also offers schools educational services aimed at boosting academic performance on state tests.

"There is more and more interest among schools in the ability to do monthly benchmarking," said Rob Cohen, the executive vice president of K-12 services for the New York City-based Princeton Review. He added that he doesn't view the overall Edison Affiliates package as seriously cutting into the territory of 2-year-old

Edison's Mr. Howland agreed that there are competitors "out there with test preparation or professional development, but I don't see who's out there leveraging the tools that have been developed in schools the way we are."

The service's biggest attraction may be that it comes just as public schools face new and substantial mandates regarding their performance on state tests.

While teachers' unions and other critics have raised doubts about the achievement claims made by Edison for its managed schools, the company nevertheless has enjoyed a good reputation among business analysts and many in public education for its assessment, technology, and professional-development systems.

"As I look at the No Child Left Behind Act, there is a significant focus on raising achievement," said Mr. Howland, referring to the federal law passed late last year. "The notion of getting a jump start on that is very attractive to superintendents."

Vol. 22, Issue 11, Page 8

Published in Print: November 13, 2002, as Struggling Edison 'Reversioning' Its School Expertise
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