Published Online: August 21, 2012
Published in Print: August 22, 2012, as Business Opportunities Seen in New Tests, Low Scores

Ed. Businesses Could Cash In on Common Assessment Struggles

With all but six states planning to adopt new common-core assessments in the coming years, states could be risking huge drop-offs in proficiency scores compared with their own standardized tests.

Policymakers are faced with a decision: to increase the rigor of state tests in advance of the common assessments, or prepare for the new tests well enough that students' scores won't plummet.

But the potential for embarrassment in states with wide gaps in scores between state-specific and common assessments could mean an opportunity in the eyes of investors and education companies.

A state in danger of flunking the common assessments is a state potentially willing to pay big dollars to firms that could help turn academic performance around, according to at least one analyst.

"Anybody with the ability to help close the performance gap, [education officials] are willing to talk to you," said Robert Lytle, a head of the Parthenon Group's Education Center of Excellence, in an interview. Parthenon is a global consulting group with headquarters in Boston; its education practice counts government agencies, school districts, and education service providers as clients.

Mr. Lytle recently gave a presentation, "Balancing Opportunity and Risk in K-12 Publishing,"Requires Adobe Acrobat Reader to a conference in New York City of about 100 private-equity investors and education executives. During his presentation, he showed a chart that made most of the audience sit up in their chairs.

Finding Needs in the Gaps

As tests based on the Common Core State Standards approach, states with large gaps between state test scores and national test scores could have major adjustments to make. An education consulting group believes those states, especially those with steady budgets, will be more likely to seek out educational services and products.

The chart plots all 50 states on the basis of two factors: the state's change in per-student education spending, and the difference between how many students scored "proficient" on state tests versus national tests. Each state is marked by a bubble, the size of which is based on population.

California, for instance, a populous state that is slashing its education budget but rates its students relatively in line with the National Assessment of Educational Progress, goes in the bottom left of the chart—a low-opportunity zone for the business sector.

On the other hand, a state like Tennessee, where education spending increased between 2008 and 2012 but state test scores overrate students compared with NAEP, goes in the upper right. That's where the best opportunities—for both for-profit and nonprofit investors, publishers, other vendors, and, most importantly, education service providers—can be found, Mr. Lytle said.

Such states are among the few finding some money in tough economic conditions, and the most likely to perform poorly on the common assessments, which are scheduled to be implemented in the 2014-15 school year.

Moves by some states to prepare for the coming assessments in English/language arts and math by increasing the rigor of their existing tests have exposed a need for improved performance.

Florida, for example, recently tweaked its Florida Comprehensive Assessment Test, and 4th graders dropped from 81 percent proficient to 27 percent in one year on the writing test. The standards were retroactively made easier to soften the blow.

'Big Performance Gaps'

So, Mr. Lytle of the Parthenon Group reasons, states suddenly looking at much lower test scores are going to need some help in improving them.

"The market is heading toward big performance gaps," he said.

When presented to the room of investors, his explanation garnered a lot of interest.

Related Blog

Those in education know how variations in funding and assessment create 50 different business climates in the K-12 market. Simplifying the picture as Mr. Lytle did gave investors hope that a sector they see as traditionally fickle and recently bearish might not be so bad—especially for companies that offer products and services that can be used close to the point of instruction for teachers.

That means focusing on three things, Mr. Lytle recommended: curriculum, pedagogy, and "human capital," or who is teaching.

There are market trends that support that theory. The commercial education market grew significantly in the past four years, but no segment grew faster than instruction and services. Companies like the virtual learning providers K12 Inc. and Connections Academy, or the publishers-turned-service-providers Pearson and Houghton Mifflin Harcourt, fit that bill.

By contrast, educational publishing sales went down from $8.2 billion in 2008 to $7.1 billion in 2011, Parthenon estimates.

As wary district officials and school administrators know, companies have two ways to take advantage of business opportunities in schools. A vendor can offer a product or service that is rigorously proven to improve academic results. Or, a vendor can make money without proving any accountability.

"There are the companies that vetted the products, and then there are the ones that haven't, and both of them have thrived," said Daniel A. Domenech, the executive director of the American Association of School Administrators, based in Alexandria, Va. "That is always a danger."

The former strategy—the thorough vetting—is expensive for companies, because it requires a lot of product development, third-party research, and a close relationship with districts, Mr. Lytle pointed out.

From the customer side, schools may struggle with the implementation of new products and not see the vendor's intended results, Mr. Lytle said.

Evaluating New Products

These are issues schools have dealt with for years, but the Common Core State Standards will provide an environment of unprecedented pressure on states, especially because "there's no question" some will take major hits on test scores, Mr. Domenech said. That could lead administrators to make hasty, short sighted purchasing decisions on unproven products, he said.

"You don't attain those kind of achievement gains overnight," he said.

State education officials hope that with proper implementation of the common standards and related tests will come a better understanding of what the K-12 market needs, and that then only vendors with proven records will rise to the top.

"Nobody wants to invest in anything not of a high quality," Chris Minnich, the senior membership director of the Council of Chief State School Officers, based in Washington, said. "We have to find a way to help states determine what's a quality implementation and what's not."

Vol. 32, Issue 01, Page 16

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