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MBA Invasion

Can private sector "consultants" help struggling districts smarten up? Maybe, but some say they do more harm than good.


On a late September afternoon at the Harvard Club in Manhattan, William Ouchi stood before a rare sight: a crowd of New York City public school administrators cheering. The UCLA business school professor turned paid consultant had just announced that his advisory work to reform the city's public schools had been a success. The city had rewritten organizational flow charts and loosened up bureaucracies, saving schools millions of dollars. The audience was ecstatic.

Then a hand went up. Herman Badillo, who had once run for mayor and had served as chairman of the board of New York City’s university system, asked if, in any of the districts Ouchi had worked with previously, his reform strategies had helped to close the achievement gap among students.

Ouchi shuffled his papers. “The effect in reducing the achievement gap has been modest,” he said. In fact, some principals had made no progress at all. Thus, the paradox of paid consultants in the world of public education was revealed.

MBAs to the Rescue
Ouchi’s role in New Yrok City public schools is part of a larger emerging trend: Across the country, school districts’ budgets are no longer limited to the old contracting basics, such as textbook publishers and food providers. Now, districts are hiring contractors bred in business schools and recruited by districts to use their CEO-type savvy for the greater good. Whether acting individually, as Ouchi did, or as part of a growing universe of private firms, these consultants focus not on specific services but on big-picture management questions. (Ouchi’s project was eventually named the “Empowerment Plan,” designed to move control away from central offices and center it with school principals.)

But in terms of these consultants improving education overall, the records are fuzzy. Outsider-designed reorganizations may look good on paper, but do they really work? A closer look at three districts, all of which have helped put fee-based educational consulting firms on the map, provides insight into what can and cannot be accomplished when a consulting firm intervenes.

Help Me in St. Louis
in 2003, a school-mba partnership was forged when Alvarez & Marsal, one of the first fee-based educational consulting businesses to manifest, answered the St. Louis school district’s call for reform. Alvarez & Marsal would act as a contractor, bringing in outside experts to suggest ways to turn around the flailing school system—for a fee of $5 million.

Newspapers ran wide-eyed reports on the new interim superintendent, Bill Roberti, whose last non-consulting job had been as the CEO of Brooks Brothers. Roberti’s hourly rate was $425, and he was also charging outside personal expenses.
Yet Roberti and his team of 20 consultants clocked 11-hour days plotting ways to cut costs and wipe out corruption and mismanagement. Under Roberti’s leadership, Alvarez & Marsal shut down schools that had been under-enrolled, applied for federal grants and loans that pumped new cash into the system, and instituted creative cost-cutting measures, such as outsourcing the school’s food provider and eliminating extraneous bus routes. According to the firm’s final report, they had done all that without having to fire a single teacher in the process.

According to Roberti, the idea was to cut costs so that the “most money can be applied to teaching and learning.” After one year, St. Louis Public Schools had saved a total of $79 million.

But the savings did not last long. Within three years of his arrival, Roberti and the school board he had appointed were gone. So was the budget plan the firm had established. In 2007, the state of Missouri took over the school system, deeming the district on the brink of bankruptcy.

“For whatever reason, the public put back in office people who were there beforehand,” Roberti says. “They said, ‘Okay, we’re going to undo everything that you guys tried to do.’” But even if Roberti’s reforms had remained, it is not clear that they would have guaranteed better educations for students.

Criticism of the firm had grown within the community. Protesters accused the “outsiders from New York City” of cutting crucial jobs and services. School board member Amy Hilgemann initially defended Alvarez & Marsal against the accusations. “Few parents are among those screaming, booing, and yelling at our meetings,” she wrote in a letter to the editor of the St. Louis Post-Dispatch in October 2003.

But by the end of Alvarez & Marsal’s tenure, Hilgemann had switched her view. “Before you lay somebody off, you should know what they do,” she told the Post-Dispatch a year later
The final blow to Alvarez & Marsal’s reputation came in a 2004 report from the Missouri education department, declaring that St. Louis’s college placement rate had dropped and its high school dropout rate had risen under Alvarez & Marsal’s tenure. These declines meant the district’s state score had dropped by more than 20 points in one year. The Post-Dispatch reported that, had the system’s accreditation been up for review, it would have failed.

All Eyes on New York
Under the leadership of Joel Klein, the schools chancellor appointed by Mayor Bloomberg, himself a former CEO, the New York City school system has also hired high-profile consultants, such as Alvarez & Marsal and the Boston-based firm Parthenon.

Ouchi also took up residence at the New York City Department of Education’s headquarters.Some of the results of the consulting work have won New York and Klein acclaim around the world. For instance, according to Klein, the money saved under Ouchi’s empowerment model allowed Klein to devolve more money directly to principals.Similarly, it was with help from the Parthenon Group and funding from the Gates Foundation that the city was able to create a program that zeroed in on children at risk of not graduating. The report generated a list of characteristics of students who were at risk of dropping out. This information provided a map for the city’s new Office of Multiple Pathways to Graduation, which pushed to serve those kinds of students.

Yet, as in St. Louis, the successes have been matched by failures. An effort to overhaul the way schools receive funding has been marred by community opposition. The effort would have determined each school’s budget by how many needy students it had, so that schools with more children in poverty and with special needs would get more money. Although the plan made sense, some practical pitfalls emerged soon after it was proposed. For instance, while some schools with affluent children would lose funding, so too would other schools that sit on the New York State Education Department’s failing list. Another element of the plan aimed to direct more experienced teachers to needier schools, but it is unclear that it would have done so in practice.

As Roberti did in St. Louis, Alvarez & Marsal attempted to overhaul New York’s bus routes, projecting savings of $20 million annually. But when the new routes were released in the winter of 2007, crises struck. The new routes dictated that some children walk to school, but overlooked the fact that to do so, they would have to cross dangerous highways. Another group of students, including some as young as kindergarten-age, requested bus service but were given free subway passes instead.

During the current school year, a second bus crisis is echoing the 2007 event, as special education students are losing spots on buses. The cuts appear to date back to a recommendation by Alvarez & Marsal that the city should reduce the number of students required to receive special education busing by rewriting their individualized education plans (IEPs). A report by the firm said the city had lowered the number of students whose IEPs demand door-to-door busing by almost 3 percent in fiscal year 2007.

Since the initial projections, the estimate of how much money Alvarez & Marsal had saved the system was scaled back. The projected $20 million annually saved with the bus-rerouting project has decreased by half. Estimations of how much the firm will save the city on other projects, such as restructuring school facilities, also appear to have dropped, from $200 million to $171 million in total.

Putting Pontiac Back on Course
in New York City, some community advocates criticized consulting firms of not being honest enough with school officials about the challenges they faced. They claimed that because the contractors were being paid by the city, they had an incentive to whitewash. Chartwell Eduation Group promised to deliver hard facts to Pontiac (MI) Public Schools, one of the first small districts to bring in a big consulting firm. So in 2007, with a $400,000 contract with the city of Pontiac, Chartwell lay bare every problem it saw with the district in a 300-page report.

It also listed solutions: The school board would need consistent, professional members; the central office would have to commit to team building; corrupt, wasteful principals would have to be publicly reprimanded; and the human resources department would have to be professionalized.“If Pontiac chooses to stay on its current path by hoping for the best and making sporadic, ad hoc reforms, disaster looms,” the report began.

It went on to detail how to cut as much as $8 million in costs by eliminating wasteful practices, such as buying employees cell phones for personal use.John Danielson, Chartwell’s president and CEO, said he was impressed by the Pontiac community’s response to the stinging report. “They said, ‘Yes, you’re right, this is the situation that we’re in,’ and they embraced the recommendations that we gave them.”The local newspaper, the Oakland Press, welcomed the report’s findings, as did the school board members, who jumped to support the push for “revolutionary change.”

The school board released a blueprint for change based directly on Chartwell’s recommendations. Some pieces have already been implemented, such as a code of conduct that aims to ramp up safety. But other recommendations have been harder to achieve. The report emphasized the importance of keeping the school board’s leadership consistent, yet in the eight months since then, the board has had four presidents.

Irma Collins, president of the teachers’ union Pontiac Education Association, named a list of recommendations that have not yet been put into action. “[The district] didn’t change the situation in the human resource department, because they still have the same people in there, and the system is not updated with current technology. They’re still basing their hiring on friends and family—hiring of teachers, personnel, hiring of anyone,” she says. Things have not changed because of the Chartwell report,” which she calls a waste of money. “Why should we pay them to come in and confirm what we’ve been saying all along?” Collins asks.

But Damon Dorkins, the current school board president, said the city is moving forward—and that the Chartwell report is the reason. “They feel that we could have done it ourselves,” he says of the union. “I feel that we needed somebody from the outside to do it.”

Place Your Bets
Dorkins is hardly the only member of the community to welcome outside expertise. Consulting firms often offer rational perspectives untarnished by a school district’s internal politics. Their cost cutting and corruption fighting can be refreshing—especially to insiders who have watched their district struggle for years with little attempt at change.

A 2005 letter of thanks from teacher Donna King in New Orleans, a district Alvarez & Marsal recently worked in, illustrates the point. Watching Alvarez & Marsal enter New Orleans was “similar to seeing the cavalry arrive in an old movie,” she wrote. “I cannot tell you how heartening it has been to me personally to benefit from the results of your hard work, and you have had many others cheering you on.”

For reform to take hold, the consulting firms argue, districts have to be open and willing to do the work. According to Chartwell’s Danielson, whose firm lost a contract in Los Angeles when a new superintendent took over, this is part of the consulting game. “There are going to be nonstarters,” he says. Roberti concurs. “You can bring the horse to water, but you can’t always make him drink.”

A deputy schools chancellor in New York City, Christopher Cerf, says districts should be wary of signing a contract that might not produce a long-term impact. “Avoid folks who come in and essentially produce dense, attractive PowerPoint presentations that are very difficult to operationalize,” he says.
The best-case scenario is hiring a consulting firm that slashes costs and weeds out corruption, while preserving the integrity of the district. It’s been a difficult goal to meet so far, but that doesn’t mean it isn’t worth trying.

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