Opinion
Education Opinion

In case you wonder what I wrote about Section 9401 in April 2005

March 28, 2008 4 min read

From “Industry Fragmentation (I): A Function of Emergence or Structure?”
School Improvement Industry Week, April 4, 2005.

Third paragraph from the top.

The terms “fragmented” and “emerging” are often conflated in discussions of the school improvement industry. In Competitive Strategy (1980), Michael E. Porter explains that while new industries can be fragmented, fragmentation need not be a function of age. The distinction is important - many providers’ profitability and investment potential depends on an assumption of scale that implies industry maturation based on consolidation. “Usually fragmented industries are populated by a large number of small- and medium-sized companies, many of them privately held. There is no single precise quantitative definition of a fragmented industry... The essential notion that makes these industries a unique environment in which to compete is the absence of market leaders with the power to shape industry events.”

Especially if the school improvement industry’s “old Europe” of textbook publishing is set aside, those segments changing the practice of teaching and learning consist of a large number of small privately held providers. “Industry shaping power” lies almost exclusively with the federal government. To illustrate, no SES firm’s or group of firms’ actions could have anything like the effect of a Department of Education decision under NCLB Section 9401 to permit districts to restrict tutoring services to the specific students and subjects that caused a school to fail AYP (emphasis added.)

Porter provides nine explanations for fragmentation that are relevant to school improvement, including 1. “newness.” ”It takes only one of these characteristics to block the consolidation of an industry.”

2. “Low entry Barriers.” “Although a prerequisite to fragmentation, low entry barriers are usually not sufficient to explain it.... (They are) nearly always accompanied by one or more ...other causes.” For the most part, product development is not a significant barrier. Consider how quickly Platform Learning was funded, purchased curriculum and ramped up its SES tutoring operations. Ironically, in this emerging industry, the principal barrier to entry is reputation. The quality of products and services remains hard to judge objectively, so the perception relates to providers’ age, size, and marketing budgets, and even the “star quality” of its educational leadership.

3. “The absence of significant scale economies or learning curves in any major aspect of the business.” This is particularly true when the industry involves “inherently high labor content... high personal service content, or is intrinsically hard to routinize.”

4. “High transportation costs.” “They are effectively high in many service industries because the service is ‘produced’ at the customer’s premises.” The closer to the product or service is to the teaching-learning relationship, the more factors 3 and 4 are likely to apply - unless the service is entirely online. SES, CSR and professional development involve both factors to a high degree.

5. “Diseconomies of scale in some important aspect” of the business. These are especially likely when the service depends on “close local control”, “local image” and “local contacts.” Quality control systems and community relations don’t scale easily or well in school improvement services. In both cases, initial growth follows from informal systems of personal contacts. After the founders run through the “people they know” to fuel the growth of clients and staff, firms require formal systems to maintain consistency. Implementation exacts a high entry price and adds greatly to fixed overhead. Moreover, these systems undermine the flexibility that enabled the firm to take advantage of local opportunities in the first place.

6. Diverse market needs, 7. High product differentiation and 8. Local regulation, “driven by industries where buyers tastes are fragmented.” No one fights the standardization of products and services like educators. No other field of government contracts is so encrusted with federal, state and local regulation.

9. Exit barriers. When it is hard to leave an industry, marginal firms tend to stay. Moreover there may be players with goals that are not profit-oriented. Some businesses enjoy “a romantic appeal or excitement that attracts competitors who want to be in the industry despite low or even nonexistent profitability.” School improvement has an unusually high number of nonprofits providing close substitutes to for-profit offerings, socially motivated owners, part-timers, and sole practitioners.

The school improvement industry’s current fragmentation follows from several factors besides newness. Is the condition permanent or amenable to change? Next week: assessing the potential for industry consolidation.

The opinions expressed in edbizbuzz are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Future of Work Webinar
Digital Literacy Strategies to Promote Equity
Our new world has only increased our students’ dependence on technology. This makes digital literacy no longer a “nice to have” but a “need to have.” How do we ensure that every student can navigate
Content provided by Learning.com
Mathematics Online Summit Teaching Math in a Pandemic
Attend this online summit to ask questions about how COVID-19 has affected achievement, instruction, assessment, and engagement in math.
School & District Management Webinar Examining the Evidence: Catching Kids Up at a Distance
As districts, schools, and families navigate a new normal following the abrupt end of in-person schooling this spring, students’ learning opportunities vary enormously across the nation. Access to devices and broadband internet and a secure

EdWeek Top School Jobs

Speech Therapists
Lancaster, PA, US
Lancaster Lebanon IU 13
Elementary Teacher
Madison, Wisconsin
One City Schools

Read Next

Education Briefly Stated Briefly Stated: January 13, 2021
Here's a look at some recent Education Week articles you may have missed.
8 min read
Education Obituary In Memory of Michele Molnar, EdWeek Market Brief Writer and Editor
EdWeek Market Brief Associate Editor Michele Molnar, who was instrumental in launching the publication, succumbed to cancer.
5 min read
Education Briefly Stated Briefly Stated: December 9, 2020
Here's a look at some recent Education Week articles you may have missed.
8 min read
Education Briefly Stated Briefly Stated: Stories You May Have Missed
A collection of articles from the previous week that you may have missed.
8 min read