Parthenon Perspectives
What is Next in K-12 Digital is Coming!
February 20, 2014
T HE PARTHENON G ROUP
Boston • London • Mumbai • San Francisco
What Informs Our Perspective?
Parthenon teams have completed over 900 education
projects in more than 60 countries
T HE P ARTHENON G ROUP
Education Sector Projects
Completed by Parthenon
Parthenon Offices
Pre-Kindergarten
K-12
Career and
Professional
University
Vocational
and Other
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What Informs Our Perspective?
Public and private sector work provides us with a strong
sense of what is happening “on the front lines”
We advise a number of
leading education institutions…
• Local educational authorities, states, and
governments
T HE P ARTHENON G ROUP
…and work with the private companies
trying to meet their needs
• Educational publishing
• Assessments
• Charter schools, private K-12 schools, and
other innovative education providers
• Tutoring
• Global post-secondary institutions
• Intervention/Special Ed
• Foundations on the forefront of educational
reform
• Technology providers
• Consumer education products
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Funding Pressures
Parthenon anticipates a slow recovery in educational
funding…
T HE P ARTHENON G ROUP
YoY Growth of K-12 Education Spending,
Actual vs. Forecast, FY1994-2018F
10%
8
6
4
2
Note: Fiscal Year July - June
Source: Congressional Budget Office; ARRA documents; Global Insight; U.S. Census; National Center for Education Statistics; NEA; Parthenon Analysis
2018F
2017F
2016F
2015F
2014F
2013F
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
-2
1994
0
4
Funding Pressures
…as a result, the next several years will continue to see
stagnant growth
T HE P ARTHENON G ROUP
YoY Growth of K-12 Education Spending,
Actual vs. Forecast, FY1994-2018F
Annual Growth Rate
6%
• State and local education spending is more
“discretionary” than other state/local budget
priorities (e.g., interest payments, Medicaid)
5.7%
• Continued federal budget shortfalls are
expected and rainy day funds are exhausted
4.1%
4
• New stimulus-level federal spending is
unlikely
2.3%
2
• Rising enrollments typically impact K-12
expenditure levels positively due to per pupil
spend formulas
• Increasing costs associated with education
(e.g., teacher salaries) tend to increase K-12
budgets
0
('92-'02)
('02-'12)
('12-'18)
Note: Fiscal Year July - June
Source: Congressional Budget Office; ARRA documents; Global Insight; U.S. Census; National Center for Education Statistics; NEA; Parthenon Analysis
5
Seeking Growth
The only growth sectors have been in digital courseware
and summative testing…
T HE P ARTHENON G ROUP
Instructional Materials Market (2005-2012F)
$8.2B
$8.6B
$8.6B
$8.1B
$8.3B
$7.8B
$7.5B
Magazines
Magazines
Magazines
Magazines
Magazines
Magazines
Magazines
Magazines
V ideo
Video
Video
Trade Books
Video
Video
Video
Trade Books
Video
Trade Books
Video
Trade Books
Trade Books
Trade Books
Trade Books
Trade Books
Manipulatives
Manipulatives
Manipulatives
Manipulatives
Manipulatives
Manipulatives
Manipulatives
Manipulatives
Digital
Courseware
Digital
Courseware
Digital
Courseware
Digital
Courseware
Digital
Courseware
Digital
Courseware
Print
Supple me nta ls
P rint
S upplemen tals
0%
State-Level
Tests
6%
Pr int
S upplementals
2008
State-Level
Tests
Modular
Software
-4%
Textbooks
2007
State-Level
Tests
State-Level
Tests
Modular
Software
7%
Textbooks
2006
Modular
Software
Digital
Courseware
7%
0%
2%
Textbooks
Textbooks
2005
Modular
Software
P rint
Supple me nta ls
State-Level
Tests
Textbooks
0
State-Level
Tests
Textbooks
20
State-Level
Tests
Modular
Software
Textbooks
40
Modular
Software
Digital
Courseware
-1%
Textbooks
60
P rint
S upple men tal s
State-Level
Tests
Modular
Software
Pr int
Su pplementals
Modular
Software
P rint
S upple men tal s
80
$8.4B
Print
Sup plementals
100%
CAGR
('05-'12 )
-7%
2009
2010
2011
2012F
Note: Modular software is defined as physical software (i.e. CD disk); Courseware is defined as online only; Market does not include formative assessments
Source: Simba
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Seeking Growth
…and district decision maker sentiments indicate that the
digital transition, though gradual, continues…
T HE P ARTHENON G ROUP
Strategic Preference for Improving Outcomes
100%
83%
80
60
40
20
0
17%
Lower Class Size
Source: Parthenon Survey November 2012; n = 104 district leaders, 148 school leaders
Increase Technology Use
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Seeking Growth
…across a broad spectrum of uses
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Spending Breakdown for Digital Courseware
100%
Other
SAT / ACT / AP test prep
Gifted and talented materials
AP / high level courses
80
Special education materials for
students
Formative assessment
60
• Multiple products in the school / classroom
for similar uses is standard
• Purchasing criteria centers around:
‒ Enhancing Student Achievement
‒ Common Core Alignment
Part of regular instruction
40
‒ Price
‒ Student Engagement
‒ Ease of Implementation
20
0
Remediation materials for specific
students
Spending Allocation
Source: Parthenon Survey August 2014 (n=244 decision makers)
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Digital Considerations
Moving from print to digital has tremendous implications
on business models
T HE P ARTHENON G ROUP
If you do not have a great product that is 1) easy to use, 2) engages students, and 3) enhances
outcomes – don’t worry about the rest because it will not be received!
1
Enhance Teaching and
Administrative
Workflows
Products and services that fit within, and enhance, established workflows
succeed; those that fight them fail
2
Selling is More Complex
Decision making for digital product often involves multiple constituents and
often (though not always) moves to a district vs. building purchase
3
Pricing Becomes
Challenging
Subscription vs. license; Per user vs. per site; myriad funding streams
4
Common Core, Common
Core, Common Core
Districts are much more sophisticated about how well aligned content and
services are with the Common Core
9
Enhancing Teaching and Administrative Workflows
What did the Teacher / Administrator do three minutes
before and after using your product?
Teaching Workflows
One of the largest workforces in the
Country, who:
• Tend to work alone;
• Have established classroom rhythms;
and are
• Change resistant – for good reasons
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Administrative Workflows
Extreme budgetary and performance
pressure grappling with:
• Rising standards and persistent
performance gaps;
• Increasing statutory compliance
complexity;
• Distributed workforce with high turn-over
• Highly politicized constituents (unions,
parents, boards, politicians)
Do not fight these workflows – odds are, you do not know better!
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Sales is More Complex
Sales into multiple constituents at the district level
requires a field sales force
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1,000K
500
100
80% coverage can be
achieved with ~ 80 reps
50
Requires ~200-250 reps (or
inside sales)
20
10
5
2
“The
Big
250”
Enrollment
“The Next 1,000”
“The Tail End”
1
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600
1650
1700
1750
1800
1850
1900
1950
2000
Enrollment (Logged)
200
~80% coverage can be
achieved with ~25 reps
Number of Districts
Concentration is especially acute when the largest school districts are considered – allowing
reasonably broad student number coverage with a moderately sized sales force
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Sales is More Complex
Becoming more than a regional player will require a fairly
national sales force
T HE P ARTHENON G ROUP
>25K
10-25K
Source: NCES
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Pricing Becomes Challenging
Subscription vs. license and per user vs. per site…
T HE P ARTHENON G ROUP
Pricing Models
(Subscription vs. License and Per User vs. Per Site)
Subscription vs. Perpetual License
•
Often determined by how districts budget
/ purchase
•
Large districts often demand flexibility
Total Lifecycle Cost
Per User vs. Per Site
•
Influenced by public perception “all
students have access to XXX”
•
Usage uncertainty plays a role
Total Cost of Ownership
Perpetual License
Per Site Subscription
Per User Subscription
•
All fees included
•
Subscription vs. License breakeven at
XXX years?
Number of Students
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Pricing Becomes Challenging
Funding patterns require invoicing flexibility and a
consultative approach
T HE P ARTHENON G ROUP
Funding Sources for Digital Courseware
100%
80
Other
Other
S tudents (Or P arents) Out of P ocket
Enhancing Education ThroughTechnology
Foundations or Other Non-Profits
21rst Century
Individual School Operating
Budget
SIG
ARRA/ RTT/ i3
60
Specific Federal Programs
IDEA
40
District Curriculum Budget/
District General Funds
ESEA Title I
Funding Sources
Federal Programs
20
0
Source: Parthenon Survey August 2014 (n=244 decision makers)
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Common Core
Expect districts to hold a sophisticated discussion
surrounding “mapped to” vs. “built to” Common Core
13M
T HE P ARTHENON G ROUP
Forty-five U.S. states and the District of Columbia have adopted Common
Core State Standards
10.5M
Di stri ctof Col umbi a
Rhode Isl and
New Mexico
10
Arkansas
Mississippi
8.8M
Vermo
ng
t
Wyo
mi n
No
rth Da
So
uth
Dako
kota
ta
Del aware
Montana
Hawai i
Mai ne
New Hampshi re
West Virginia
Idaho
8
Nevada
Iowa
Connecticut
Oregon
South Carolina
Wisconsin
Missouri
5
Kentucky
Louisiana
Colorado
Maryland
Massachusetts
Tennessee
Arizona
Washington
North Carolina
New Jersey
Michigan
Ohio
Illinois
3
5.3M
Kansas
Utah
Oklahoma
Alabama
Indiana
Georgia
Number
of States
+ DC
Al aska
Minnesota
Virginia
Pennsylvania
California
0
5M
Nebraska
Texas
New York
Florida
Smarter Balanced
PARCC
Neither
Did not Adopt CCSS
22
16
8
5
Note: Includes the District of Columbia, but not U.S. Territories (no student population data available); Oklahoma, Pennsylvania, and Georgia have decided to stay connected with the efforts in a
Advisory capacity, but have not committed to administering exams from the two consortia; New York, although a member of PARCC will use their own versions of Common Core assessments (1.8M
students); Alaska decided to stay with its own state standards, but is a member of SBAC; Minnesota adopted Common Core English standards in 2010, but kept its own math standards
Source: NCES Student Data for grades 3-11, 2010-2011
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About The Parthenon Group and our advisory services
for investing in education
T HE P ARTHENON G ROUP
The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai,
San Francisco, and Shanghai. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory
services built on long-term client relationships, a willingness to share risk, an entrepreneurial spirit, and customized insights.
This unique approach has established the firm as the strategic advisor of choice for CEOs and business leaders of Global
1000 corporations, high-potential growth companies, private equity firms, educational institutions, and healthcare
organizations.
Parthenon has served as an advisor to the education sector since our inception in 1991. Our Education Practice – the first of
its kind across management consulting firms – has an explicit mission and vision to be the leading strategy advisor to the
global education industry. To achieve this, we invest significantly in dedicated management and team resources to ensure that
EDUCATION PRACTICE
our global expertise extends across public sector and non-profit education providers, foundations, for-profit companies and
service providers, and investors. Parthenon has deep experience and a track record of consistent success in working closely
with universities, colleges, states, districts, and leading educational reform and service organizations across the globe.
.
Learn more about us at www.parthenon.com.
Robert Lytle
Partner, Co-Head of Education Practice
robl@parthenon.com
617.478.7096
Twitter | @Robert_S_Lytle
Executive Assistant:
Deb Spitzley
deborahs@parthenon.com
617.478.6312
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