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Parthenon Perspectives. North American Publishing: So, What Do We Do Now?. June 5, 2012. Agenda. What Informs our Perspective? Parthenon Perspectives on U.S. K-12 Market Trends The Implications We See for Providers in the Space. - PowerPoint PPT Presentation
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THE PARTHENON GROUP Boston London Mumbai San Francisco North American Publishing: So, What Do We Do Now? Parthenon Perspectives June 5, 2012
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Page 1: Parthenon Perspectives

THE PARTHENON GROUPBoston • London • Mumbai • San Francisco

North American Publishing:So, What Do We Do Now?

Parthenon Perspectives

June 5, 2012

Page 2: Parthenon Perspectives

THE PARTHENON GROUP

2

Agenda

What Informs our Perspective?

Parthenon Perspectives on U.S. K-12 Market Trends

The Implications We See for Providers in the Space

Page 3: Parthenon Perspectives

THE PARTHENON GROUP

3

What Informs Our Perspective?The Parthenon Group has completed 400+ education assignments globally

Pre-Kindergarten K-12 University Vocational and Other

Career and Professional

= On-the-Ground Education Sector Projects Completed

= Parthenon Offices

Page 4: Parthenon Perspectives

THE PARTHENON GROUP

4

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…

…and work with the private companiestrying to meet their needs

• Local educational authorities, states, and governments

• Charter schools, private K-12 schools, and other innovative education providers

• Global post-secondary institutions

• Foundations on the forefront of educational reform

• Educational publishing

• Assessments

• Tutoring

• Intervention/Special Ed

• Technology providers

• Consumer education products

Page 5: Parthenon Perspectives

THE PARTHENON GROUP

5

Agenda

What Informs our Perspective?

Parthenon Perspectives on U.S. K-12 Market Trends

The Implications We See for Providers in the Space

Page 6: Parthenon Perspectives

THE PARTHENON GROUP

6

0

20

40

60

80

100%

U.S. K-12Education Spending

Benefits

Salaries

Supplies & Related Services

Other

Content

100%

U.S. Market Perspectives Within K-12 education, content is considered more “discretionary” and has suffered accordingly

K-12 Publishing Market Revenues, 2007-2011

Note: Figures are from company financials where available; Simba estimates are used for competitors without relevant public dataSource: U.S. Census Bureau; E-Learning Council; National Center for Education Statistics; BMO Capital MarketsSimba; Company Financials; Company Earnings Calls; Analyst Reports; Veronis Suhler Stevenson

Content is less than 2% of all

K-12 spending

Total U.S. Education Market, 2008

McGraw-Hill

Pearson

HMH

Other

School SpecialtyScholasticEducation

$8.2B$7.7B $7.7B

$7.1B

0

2

4

6

8

$10B

2008 2009 2010 2011F

-13%

-3%

-11%

2%-12%

1%

('08-'11)-5%

CAGR

57% 50% 52% 50%Top 3 Share

Page 7: Parthenon Perspectives

THE PARTHENON GROUP

7

Required assessment of student performance and imposed consequences

Demand for intervention and assessment materials increased (assessment market grew at 7% CAGR from ‘05-’11)

Did not impose new requirements related to basal textbooks

Basal spending has been mostly flat since 2000

0

1

2

3

$4B

1990

$1.9

B

1991

$1.9

B

1992

$1.9

B

1993

$2.1

B

1994

$2.0

B

1995

$2.3

B

1996

$2.4

B

1997

$2.8

B

1998

$3.0

B

1999

$3.0

B

2000

$3.3

B

2001

$3.3

B

2002

$3.1

B

2003

$3.2

B

2004

$3.1

B

2005

$3.4

B

2006

$3.4

B

2007

$3.4

B

U.S. Market Perspectives NCLB’s spotlight on performance spurred spending on intervention and assessment – so, what is next?

Impact of No Child Left Behind on Instructional Materials Spending

1

2

Note: *Based on AAP respondents only, does not equal full marketSource: Association of American Publishers; Parthenon interviews

U.S. K-12 Basal Market*, 1990-2007

Aggregation and customization NCLB

Page 8: Parthenon Perspectives

THE PARTHENON GROUP

8

Curriculum - WHAT is being taught

• Common core standards and assessments

• Balance of cognitive and non-cognitive skills acquisition

Advances in Technology• Realization of potential for true differentiation at scale through online delivery and

proliferation of devices• Leveraging the “I” in “IT” - potential rise of business intelligence

Changing Federal Role – At least for now• Competitive grant funds (RTTT, i3)

• ESEA Reauthorization

Pedagogy - HOW it is being taught

• Personalization / Next Generation Models

• Adaptive assessments• Self-directed, competency-

based models

Human Capital -WHO is teaching

• Measuring and making decisions on quality

• Developing new roles and pathways

• Personalization of professional development

Changing Institutional Landscape – Increasing accountability and competition• Performance management within K-12 systems

• Post-secondary NCLB-like accountability • Rise of non-public competitors (for profit and charter schools)

U.S. Market Perspectives The sector is addressing challenges through innovative curriculum, pedagogy, and human capital

Page 9: Parthenon Perspectives

THE PARTHENON GROUP

9

U.S. Market Perspectives Nearly all successful products and services over the past few years adhere to four broad heuristics

Personalization has always been a goal but digital solutions and adaptive technologies make it seem just within reach

Products and services that fit within, and enhance, established workflows succeed; those that fight them fail

$50 to $150 of instructional materials expenditure vs. $7,000 to $12,000 of instructional expenditure

The performance gap continues and is still front-and-center on Superintendent’s agendas

Help Close the Performance Gap

1

Support Personalization

2

Enhance Teaching and Administrative

Workflows

3

Get Closer to the Point of Instruction

4

Page 10: Parthenon Perspectives

THE PARTHENON GROUP

10

0

20

40

60

80

100%

National Assessment Est.(NAEP)

Basic (below standard;partially mastery of

required areas)

Below Basic (below standard;unable to keep up

with grade-level work)

Advanced

Proficient(demonstrate competency

in required areas)

Help Close the Performance GapServing the students receiving accountability scrutiny is a challenge for most districts

K-12 Variability in Student Performance (2009-10)

1

Page 11: Parthenon Perspectives

THE PARTHENON GROUP

11

Help Close the Performance GapIf Common Core has teeth, the “Performance Gap” will get a lot bigger!

Note: Proficiency delta is for 2008-2009 and is an average of deltas for 4th and 8th grade reading and mathematics proficiency; Budget shortfall for Tennessee is not available

Source: NCES; Center on Budget and Policy Priorities

State-National Proficiency Delta vs. FY2012 Budget Shortfall

Avg. = 38%

Avg. = 11%

Low funding, Low need

Low funding, High needHigh funding,High need

High funding,Low need

Democratic Governor

Republican Governor

Independent Governor

0

20

40

60

80%

0 10 20 30 40 50%

5MK-12

Enrollment

CA

TX

FL

ILGA

NC

MI

NJ

VA

AZ

MAMO

CO

MN

MD

AL

SC

LA

OK

UT

MS

IA

KS

NM

ID

NE

HI

MT

DC

5MK-12

Enrollment

FY2012 Budget Shortfall

Sta

te-N

atio

nalP

rofic

ienc

yD

elta

NYOH

PA

IN

WA

WI

KY

OR

CT

AR

NVWV

NHME

RI

AK

DE

SD

WY

ND

VT

1

Page 12: Parthenon Perspectives

THE PARTHENON GROUP

12

2Support PersonalizationTechnology is putting “Personalization” within the grasp of educators…

Static Interactive Individualized Personalized

Increasing Complexity

Content • Static digital content (on screen book)

• Supplemental materials over reasonably static content

• Prescriptive options built into program that allow individualized pathways

• Content delivered according to students personal needs

Assessments • End of chapter

• Digitized item banks

• Test prep

• Instructor ability to modify/create tests

• Formative with ability to indicate groupings or pathway for instructor through content

• “Authentic Evaluations”

• Fully adaptive assessments

Delivery/ Device

• PC in classroom on school network

• PC-based, accessible anywhere • Multi-platform, wireless

• One-to-one

Page 13: Parthenon Perspectives

THE PARTHENON GROUP

13

Enhance Teaching and Administrative WorkflowsTeaching and Administrative workflows dictate how well your products and services will be adopted

Teaching Workflows Administrative Workflows

3

One of the largest workforces in the Country, who:

• Tend to work alone;• Have established classroom rhythms;

and are• Change resistant – for good reasons

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!

Page 14: Parthenon Perspectives

THE PARTHENON GROUP

14

3Enhance Teaching and Administrative Workflows Products and services in a digital world also need to fit within established workflow needs

Static Interactive Individualized Personalized

Increasing Complexity

Content • Static • Supplemental • Prescriptive options • Personalized

Assessments

• End of chapter

• Digitized item banks

• Test prep

• Instructor ability to modify/create tests

• Formative with ability to indicate groupings

• “Authentic Evaluations”

• Fully adaptive assessments

Delivery/ Device

• PC in classroom on school network

• PC-based, accessible anywhere • Multi-platform, wireless

• One-to-one

Teaching Workflows

• Basic Teacher Tools (grade book, calendar)

• Teacher ability to monitor, group and customize (student profiling and grouping, customization of content/assessment, content creation tools)

• Algorithmically drive recommendations for scope, sequence and personalization

Admin Workflows

• Data capture and transfer

• Administrative tools • Business Intelligence

Page 15: Parthenon Perspectives

THE PARTHENON GROUP

15

0

25

50

75

100

$125B

2010

Ed TechSupport Services

Instruction& Services

Content

$87B

2014F

$125B

Get Closer to the Point of InstructionBeing at the point of instruction invites higher growth and higher margins

Source: Company 10K’s; Simba; Outsell; Global Insight; Eduventures; NCES; Parthenon market research

U.S. Commercial Education, 2010-2014F

Higher Growth; Higher Margins

4

Page 16: Parthenon Perspectives

THE PARTHENON GROUP

16

0.0

0.5

1.0

1.5

2.0M

2005-2006

0.7M

2008-2009

1.6M

32%

('05-'08)CAGR

Online K-12 Public Enrollment, 2005-2008

Get Closer to the Point of InstructionInnovative solutions are accelerating in the K-12 landscape – much as they did in post-secondary

Note: K-12 Public Online enrollment includes students who are enrolled in both hybrid and fully virtual schoolsSource: Education Public Interest, Eduventures and BMO Capital Markets; SRI International for the U.S. DOE

0.0

0.2

0.4

0.6

0.8

1.0M

2003-2004

0.5M

2006-2007

1.0M

Post-Secondary Online Enrollment, 2003-2006

4

0.0

10.0

20.0

30.0

40.0M

2006

11M

2011

31M

Online K-12 Course Provider Revenues, 2006-2011

Page 17: Parthenon Perspectives

THE PARTHENON GROUP

17

Agenda

What Informs our Perspective?

Parthenon Perspectives on U.S. K-12 Market Trends

The Implications We See for Providers in the Space

Page 18: Parthenon Perspectives

THE PARTHENON GROUP

18

Parthenon Perspectives: Impact on Industry Ultimately, scale positions will matter, as only the strong will survive

0

1

2

3

4

$5B

1995

Other

Tribune

McGraw-HillAddison-Wesley

PearsonSteck-Vaughan

HarcourtHoughton Mifflin

$3.4B

2007

Other

McGraw-Hill

Pearson

HMH

$4.2B

0

1

2

3

4

$5B

1995

Other

Times Mirror (Tribune Co.)John Wiley & Sons, Inc.

McGraw-Hill, Inc.Addison Wesley

Prentice HallD.C. Heath & Co.

Harcourt BraceHoughtonMifflin Co.

West

$2.3B

2007

Other

John Wiley & Sons, Inc.

McGraw-Hill,Inc.

Pearson

Cengage

$4.6B

Thomson

Source: MIR; AAP; Outsell

K-12 Basal Market, 1995-2007

U.S. Higher Ed Publishing, 1995-2007

Page 19: Parthenon Perspectives

THE PARTHENON GROUP

19

0

20

40

60

80

100%

K-12

Student SupportServices

Publishing

Schools

Training and Professional DevelopmentTesting and Assessment

Technology

143

Higher Education

Publishing

Universities and Colleges

Vocational

Technology

Testing and AssessmentInstitutional Service

159

CorporateTraining& Other

Cor

pora

teTr

aini

ng

ProfessionalTraining

Other Training/Education Services

46 Total = 348

Mix of Ed.Servicesand OtherEducationServices

Other

Parthenon Perspectives: Impact on Deal MarketsSignificant capital has been poured into instruction and services

U.S. Education Market Investment Activity:Number of Deals (2005-2010)

Source: Pitchbook, December 2010; Capital IQ Education Industry, December 2010; BMO Education Market Equity Report September 2008; Stifel Nicolas Postsecondary Education Factbook

Page 20: Parthenon Perspectives

THE PARTHENON GROUP

20

Parthenon Perspectives: The CaveatsSorting out winners and losers requires both an educational and business perspective

• Emerging markets are ill-defined and highly fragmented

• Product offerings are relatively undifferentiated (and sometimes downright difficult to understand)

• Few companies have a sales force of any real size

• District purchasing processes evolve slowly and sporadically

There will be winners and losers

Page 21: Parthenon Perspectives

THE PARTHENON GROUP

21

About The Parthenon Group The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai, and San Francisco. 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.

About Parthenon’s Education Practice 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 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.

For further information, please contact:Robert S. LytlePartner, The Parthenon Group Education Center of Excellence(617) 478 [email protected]

Assistant: Deborah Spitzley (617) 478 [email protected]

About The Parthenon Group and Our Education Practice


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