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Prognosis For Day Schools Worrisome
Tue, 08/24/2010
Special to the Jewish Week

Having spent almost 13 years in Jewish education, and the last four as a head of school, I am intimately familiar with the question of day school viability. I am fortunate to have been involved, in an advisory capacity, with Yeshiva University and Avi Chai, and I have heard a number of important, thought-provoking, and creative ideas to improve the quality and affordability of our day schools.

However, I think there is a more fundamental issue with which we need to grapple before considering various funding and programmatic decisions, and that is the viability of the day school “industry” overall.

The classic tool for analyzing the viability of industries is Michael Porter's five Force model. This model is widely used to examine the strength of external forces on the incumbents in a given industry.

Porter identified five factors, each of which poses a potential threat to existing businesses; the viability (and profitability) of an industry is proportional to the strength of the various threats. The five forces are: existence of potential entrants, availability of replacement products, heavy reliance on customers, significant reliance on suppliers, and intense rivalry. The stronger the threat from each force, the worse it is for that industry. A high level of threat from all five forces makes the industry almost unsustainable.

And this brings me to the Jewish Day School world. As I have read case study after case study, I can't help but get a pit in my stomach as I come to the realization that many of our communities have day school systems that score high on all five of these:

• It is easier today than it has ever been to start a day school. You need only identify a donor, rent a storefront, announce a mission, and you can start a school with as few as 15 to 20 students.

• The threat of replacement products is as high as it has ever been, as home schooling, charter schools, and online programs have all become an increasingly viable option.

• Schools rely heavily on our customers, particularly when parents are able to shop around for the best price.

• Increasing salaries in schools are due to the limited supply of, and high demand for, qualified teachers and administrators. This raises the cost of “doing business”. This becomes an even bigger issue when schools “poach” staff from other schools. The reliance on “suppliers” is quite significant.

• Finally, and perhaps most significantly, the rivalry between schools in many communities has created an awful culture, both fiscally and socially. The intensity of such rivalries often results in “price-wars” that may help a school increase enrollment in the short term, but hurts the community and itself in the long run.

YU, RAVSAK, PEJE, Avi Chai, and other foundations and donors have done, and continue to do a tremendous amount to improve our day schools and make them fiscally strong. But this has to be complemented by a more comprehensive look at the day school “industry” and the forces at play. In order to make the day school system viable, we must address a number of the five forces.

There are several ways this can be achieved, including: incentivized mergers to minimize rivalry, communal mechanisms to prevent poaching of teachers and “price wars” between schools, and the integration of replacement products, such as online classes, into our existing school structures.

I don’t believe that all five forces need to be “fixed” for the Day School world to survive. I do believe we need to lower the threat level from a number of them, and that doing so is definitely within our reach. If we can address these issues, then we will be able to implement many of the impressive ideas that have been put forward to take Jewish education through the twenty-first century.

Rabbi Ari Segal is head of school at the Robert M. Beren Academy in Houston, Texas.

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Dear Anonymous, I certainly can appreciate where you are coming from in your response but I believe it is off the mark. I am not suggesting that we should do away with competition as competition, when healthy, is good for the product quality and innovation. As an example, Coke and Pepsi have a very healthy rivalry and they compete directly with each other - but they don't compete on price and negativity (sales for Coke and Pepsi are done by the local stores - not by the parent companies). This has pushed these two companies to continually improve their product lines and allowed for the industry to thrive while the customers get what they want and the parent companies stay healthy. On the other hand, there are numerous cases of unhealthy industries that have a ton of competition. Your remark about "a few minutes with an economics textbook" is actually inaccurate. In fact, anyone who has read an economics textbook will be very aware that in many cases, the kind of competition that is currently the norm is going to kill the day school world. (Pareto efficient/inefficent are the Economics terms for this precise issue and I encourage readers to look into this concept and/or contact me for more information.) While you may feel it would be a good thing for the free market to determine the need for day schools, I am not so sure I agree. I think, as Josh Elkin suggests in his opinion piece in this paper, that day schools are a must-have and we need to figure out how to keep them solvent - while continuing to increase quality and affordability. Finally, you suggest that I am making a "naked pitch" to raise prices and lower quality. The truth is quite the opposite. I suggested, very explicitly in my piece, that we can lower prices (by being able to lower salaries) if we had some community controls over interactions between schools. Moreover, the very rivalry I am encouraging (ex. Pepsi and Coke) promotes competition on quality. This will yield far stronger schools than currently exist - as schools no longer have to focus on cutting quality to match the most recent price-cutting of the 5 local competitors, and can instead focus on providing consumers the best possible education. Please understand that I have spent the last 13 years of my life and hundreds of 24/7 weeks working for day school education, but every school - even the one I am 100% committed to - still works within a larger ecosystem, and the best of intentions and hard work can, at times, be powerless in the face of larger forces. I am thinking of the tide, not the individual boats. I hope this clarifies my position. I would be happy to discuss further with you. Feel free to email me at ras@berenacademy.org
I would think readers would MAINLY be more interested in what's in the interest of students and parents and the larger community, rather than in what's in the interest of schools per se. Rabbi Segal is making a naked pitch for higher prices and lower quality by seeking to establish monopolies and fix prices -- which are incidentally illegal in most business settings in the United States. Would he like the goods and services HE seeks in the marketplace to be controlled by the producers to the detriment of consumers? A few minutes with any economics textbook should convince readers who aren't already knowledgeable on the subject that competition brings about higher quality and lower prices. It indeed allows new entrants to upset the apple cart of those who would be content to produce low-quality, high priced education -- and low-quality, high-priced everything else. We should celebrate the fact that it is easy to start a school, that parents can shop around, and so forth.

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