Stanford Business School Alumni Magazine, November 01, 2001        

No Textbook Answers: GSB alums are using their management training to attack problems in the nation’s public schools. It’s not an easy assignment.

By KARL SCHOENBERGER 

HOPE COMMUNITY ACADEMY, an innovative elementary school in St. Paul, Minnesota, tells the story of how a few good ideas from the world of business can help transform public education. The K–3 charter school made its debut last fall after elders in the city’s ethnic Hmong community complained that their children were performing poorly in local public schools. The special needs of these students were not being served by conventional bilingual education and summer school programs. 

So parents organized and started their own school. They located a site in an abandoned brewery in the eastside Swede Hollow neighborhood, where many Hmong refugees had resettled after fleeing the highlands of Laos in the aftermath of the Vietnam War. To run Hope Community Academy, they turned to LearnNow, a for-profit “educational management organization” (EMO) based in New York, in order to balance the unique cultural sensitivities of their community with a no-nonsense administration that stresses such practices as rigorous student testing and budgetary discipline. The progress made during Hope’s maiden year was measurable and dramatic, says Jim Shelton, president of LearnNow, which became a division of Edison Schools in July. Shelton, who earned dual master’s degrees at Stanford’s Graduate School of Business and the School of Education in 1993, says as many as 88 percent of Hope’s kindergartners and 92 percent of its first-grade students scored in the fall at “below basic” level on the Sunshine Assessment, a standardized test for early development in literacy. By springtime, their scores had flipped: 90 percent of kindergartners and 84 percent of first-graders scored at “proficient” or higher. Second- and third-graders demonstrated similarly significant improvement in the SAT-9 test. “These kinds of gains are unheard of, especially in a first-year school,” says Shelton, a former McKinsey & Co. consultant who grew up in a disadvantaged African American neighborhood in southeast Washington, D.C. “It’s clear there are no excuses for not creating an environment where all children can achieve.” 

Shelton is one of the growing number of GSB alumni/ae on the front lines of education reform—entrepreneurs who are using their management skills to attack the seemingly insurmountable problems of the nation’s ailing public schools. Things don’t always go as smoothly as they have for LearnNow in St. Paul. Along with other pedagogues from the business community, Stanford’s MBAs encounter an entrenched education bureaucracy and deep suspicion about the remedies they advocate. Fundamental business concepts—such as strict fiscal accountability, efficiencies of scale, merit-based compensation, and assessment of quantifiable results—can seem radical and threatening in the tradition-bound education environment, where the culture of change is slow and cautious. The vehicle for this change in many cases is the charter school—an independent school within a public school district that is funded by the same taxpayer money as others but managed by an outside organization that hires its own staff and operates with an alternative philosophy. Stanford MBAs are involved in a wide range of organizations that have education reform as their goal, from nonprofit and for-profit EMOs to foundations that provide funding to school experiments to groups that train teachers, principals, and school volunteers. The business-inspired solutions they promote, however, can sometimes meet with resistance.

THIS CONFLICT IN VALUES came into sharp focus recently in a contentious debate over the renewal of an elementary school charter in San Francisco held by Edison Schools, LearnNow’s parent and the nation’s largest for-profit EMO. Despite praise from many parents and claims by Edison staff that significant progress had been made in learning achievement during the school’s three years of operation under charter, a majority on the San Francisco Board of Education was deeply troubled by Edison’s for-profit and publicly traded corporate status. Critics claimed the school’s test results were skewed because poorly performing students had been eliminated from the test pool. The board revoked Edison’s charter, but in a last-minute compromise allowed the school to stay open this fall under state supervision. 

"Public schools and public institutions operate in very different ways than people trained and experienced in the private sector tend to realize,” says Linda Darling-Hammond, the Charles E. Ducommun Professor of Education at Stanford. Darling-Hammond supports the efforts of entrepreneurs to solve problems in education, but notes that imposing business theories on the U.S. public school system is nothing new: Initiatives to fix schools with testing and merit pay have come and gone since the early part of the last century. Pay-for-performance in today’s school environment, for example, remains ineffective because “the people who are supposed to be handing out merit pay raises—the principals and the administrators—don’t have the time or the qualifications to determine which teachers deserve it.” The problems are very deep and very complex, she says.  

"You need to change something within the system to get out from under it and allow innovations to work.” 

Because the byzantine debate on school reform has tended to go in circles rather than progress in straight lines, it’s an increasingly important task to bridge the divide between education traditionalists and the agents of entrepreneurial change. This is especially true in light of President Bush’s controversial education reform initiative, which contains many elements advocated by business interests—including national testing standards and practices that some educators fear will have the devastating effect of pushing students out of the system and reducing high school graduation rates. 

One person taking on the leadership challenge of moderating the debate is Kimberly Smith, MBA ’98. Smith, a former Teach for America corps member and business training consultant who is the daughter of an education professor and a school teacher, likes to talk about “hybrid” solutions. “People are speaking two different languages” when they talk about education reform, says Smith, chief executive of San Francisco–based New Schools Venture Fund. “Efficiency is not necessarily equal to effectiveness. The trick is to get to a hybrid space where you have business leaders driving to efficiency and educators seeking quality and effectiveness.” 

New Schools, where Lauren Dutton, MBA ’97, is also a partner, is a donor-supported nonprofit organization that describes itself as a “venture philanthropy” fund investing in “education entrepreneurs.” The organization helped Shelton and his cofounder, CEO Eugene Wade, by seeding their fledgling LearnNow startup with loans and a $1 million equity investment. The fund will reinvest capital gains generated by the Edison merger into other school reform initiatives, for-profit and nonprofit alike. “The public school system, the business sector, and the nonprofit sector all have parts of the solution. What’s needed is a commitment to bring all these parts together,” says Smith. 

The basic vision at New Schools—which was founded by Brook Byers, MBA ’70, of Kleiner, Perkins, Caufield & Byers and other prominent Silicon Valley venture capitalists—is that by leading by example, entrepreneurs can have a catalytic effect of instilling business-style accountability in public schools. One basic problem in the education establishment is “misalignment,” says Smith, where resources go into the system without being linked to measurable outcomes in educational achievement. Compared to the $360 billion that the nation spends on public education every year, New Schools’ $20 million investment portfolio is minuscule, but Smith says it is “strategic,” aimed at influencing public policy deliberations and decision making on a larger scale. 

Gloria Lee, MBA and MA in education ’98, takes a somewhat different approach. She also cut her teeth as a business consultant at McKinsey and, after Stanford, helped establish the Bay Area office for a UCLA School of Management program that trained public school teachers and principals in leadership and change management. Lee is now chief operating officer for Aspire Public Schools, a nonprofit charter school organization founded in a partnership between prominent Bay Area educator Don Shavley, former superintendent of schools in San Carlos, Calif., and high-tech entrepreneur Reed Hastings. 

Lee is among the ranks of reformers who envision the ideal of an “education marketplace” that would offer parents greater choice and revolutionize public education once there is a critical mass of alternatives, primarily in the form of charter schools. “The idea of creating more opportunity for parents to choose is a good one, and I think we’re moving in that direction,” Lee says. But she adds, in a note of realism: “We may never really get there.” 

Aspire is doubling the number of charter schools it operates from three to six this fall, including a new elementary school in East Palo Alto, Calif., the underprivileged oasis surrounded by high-tech wealth, where public education has failed famously and where education reformers love to set up laboratories for their ideas. There are stubborn obstacles in the way of increasing the charter school supply rapidly enough to meet seemingly insatiable demand for choice, Lee says. Scarcity in school facilities is a bane for many new charter schools, which might have to spend up to 15 percent of their budget on rent, a burden not placed on conventional public schools. “It’s not a level playing field,” Lee says. 

Another major problem, school reformers say, is the need for customization. A school that succeeds in one community cannot be cloned and transplanted. Currently, there are approximately 2,000 charter schools in the 36 states that allow them—a fraction of America’s 90,000 public schools. Each charter school operates with varying degrees of autonomy within local public school systems, but all are dependent on the same per-pupil funding for their operating costs as other district schools. The fact that community needs differ from district to district and per-pupil funding varies widely across state lines makes for a maddeningly complex patchwork of market conditions. Efficiency that might be derived by creating a successful charter school model and applying it uniformly on a large scale is illusory in the so-called education marketplace. 

The same seems true for the for-profits. Edison Schools—founded in 1992 by media entrepreneur Christopher Whittle (creator of the Channel One commercial television news program for student audiences) and chaired by former Yale University president Benno C. Schmidt—now manages 113 public schools nationwide under charters or on a contract basis. Edison may be a for-profit entity whose stock is weathering the storm reasonably well on the NASDAQ, but it is far from profitable. The company recorded net losses of $29.3 million on growing revenues of $266.7 million during the nine months ending March 31. Much as is the case with charter schools in general, about half of Edison’s schools have not been measurably successful—including an Edison school in East Palo Alto that has been placed on the state’s list of underperforming schools, according to Darling-Hammond. 

If classic market mechanisms aren’t necessarily the answer to school reform, what else can business offer? 

The KIPP Foundation believes it has answers and a model for success that draws heavily on business management concepts that can be learned and theoretically transplanted across diverse localities. KIPP—the acronym stands for Knowledge is Power for Progress—is not an EMO seeking the elusive economies of scale. It’s a training organization that guides a branded network of autonomous charter schools in what it believes are proven principles for turning around failing schools.  

The major distinction in its approach is the marathon classroom hours that are required of every KIPP academy. The school bell rings at 7:30 A.M. and students don’t go home until 5 P.M.—not to mention the additional hours they’re required to attend on Saturdays under KIPP’s principle that “there are no shortcuts.” Lisa Daggs, MBA ’96, yet another joint master’s degree holder in business and education, is chief of staff for the KIPP Foundation in San Francisco. Daggs became a Teach for America corps member after earning her bachelor’s degree in economics from Stanford in 1991. She had her trial by fire teaching fifth grade in a crumbling Oakland public school, where she became frustrated by the institutional inertia of the traditional and, in her school’s case, substandard learning environment. “I felt there had to be some things the private sector was doing that I could apply to education, but I didn’t know exactly what these were. It seemed the bureaucracy within the Oakland school system wasn’t the answer and there had to be a better way,” says Daggs, who after graduate school spent several years as a consultant at Deloitte Touche Tohmatsu before returning to the education fold. Part of kipp’s solution for schools in crisis is the Fisher School Leadership program, which indoctrinates its network of educators in an 8-week course in education management at the University of California’s Haas School of Business. Funded by Gap Inc. founders Doris and Donald Fisher, the program uses case-study and role-playing techniques to offer its students rigorous training in general management as well as in specific tasks of administrating charter schools and developing innovative classroom teaching plans. 

Julien Phillips, MBA ’70, executive director of San Francisco-based Partners in School Innovation, takes another approach to reforming public schools with best practices from business. Phillips trains AmeriCorps members for classroom duty—but not as teachers. His organization dispatches smart manpower to troubled schools in low-income districts in the Bay Area to help lift the burden from harried teachers and principals. In this support role, they focus on such tasks as analyzing student test results and helping design teaching plans to meet the needs of individual students in the classroom. Once a Peace Corps volunteer in Peru who later became a partner at McKinsey & Co. specializing in organizational change, Phillips says his tactics are gentle but highly effective. “If we act as if we know how to run schools better than the people in the system,” he says, “we’ll be rejected.” 

Karl Schoenberger is a former correspondent in Asia for the Los Angeles Times, Fortune, and other news organizations. He is the author of Levi's Children: Coming to Terms with Human Rights in the Global Marketplace (Atlantic Monthly Press, 2000).