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ImperialAfter looking at the numbers on enrollment decline this year, you have to wonder if the Philadelphia School District has reached a tipping point.  Today, the district has 131,000 students – 4,000 fewer than it expected.  Where did the missing 4,000 go?

We still don’t have a complete answer.  Many went to charter schools, even though the district is trying to keep a lid on charter enrollment.  Others went to Catholic schools.  Still others are just gone. Poof!

If the district loses as many students in the next five years as it has in the previous five, total enrollment could fall below 100,000. The district could end up educating a minority of Philadelphia’s school-age children.  In effect, it could end up as a niche provider of education.

It’s always hard to talk about the district with any objectivity.  The whole debate over urban public education is fraught with emotional and political baggage.  It doesn’t take long for conversations to escalate to hysteria.

It’s best to take a step back. For a moment, let’s assume we are not talking about a public school district, but a large private business that manufactures widgets.

Let’s call this company Imperial Widget, Inc. about which we can offer these generally agreed-to facts:

1. It lacks consistent leadership.  Four different CEO’s have headed the company in the last 13 years.  The current CEO has been on the job just 18 months. All of his recent predecessors were fired after only a few years on the job.

2. It is losing market share.  Imperial once had a de facto monopoly, but began losing that dominance about a dozen years ago. In the beginning, the losses were slight. They have accelerated in recent years. The bottom line is that its customer base has decreased in every year since 2000.

3. Its competitors are growing.  The overall market for widgets hasn’t declined.  Only Imperial’s share has.  Instead, customers have abandoned the company for competitors, who keep expanding as demand increases.

4.  It has the reputation for inconsistency.  Some of what Imperial produces is fine, but most of it falls below par – when compared to national norms.  It’s harder to compete when the most you can claim is mixed results.

5. It is undercapitalized.  For various reasons, Imperial’s budget has declined in recent years.  It is operating in the red.  It has had to reduce workforce. It cannot replace out-of-date equipment and plants.  In the face of increasing competition it cannot retool and offer something bigger and better. Budget constraints preclude it solving its problems with an infusion of cash.

6. It has a reputation of being slow to change. The word most commonly associated with Imperial is “lumbering.” When it enjoyed a near-monopoly in its sector, lumbering was fine.  Now that it needs to be more competitive, it finds it difficult to adapt.  Its employees and its managers are seen as too set in their ways. In addition, it is saddled with legacy costs, with higher pensions, benefits and wages than its competitors.

Employees and managers within Imperial are well aware of their company’s plight and they have hundreds of reasons – many of them quite valid – why it finds itself in this predicament.  The short version is that they were more sinned against than sinning and what’s happening is very unfair.

Despite efforts to change, however, not much headway has been made in solving the fundamental problems outlined above.

You don’t need an advanced degree in economics to figure out that Imperial is in trouble.  A casual reader of business news would know not to invest in ImpW, as it known on the stock exchange.  Without major changes, the trend lines seem obvious – a continued loss of customers, additional reductions in workforce, less capital, more customers lost, etc.  It is a downward spiral.

If you watch CNBC you know that some experts argue that Imperial’s real problem is No. 5 – a lack of money.  Infuse cash into the operation, they say, and it will set it on a path of growth and renewal.

Other talking heads sympathize with the current CEO, saying he has good ideas but his attempts at changing Imperial have been stymied by forces within. The culture of Imperial has trumped his attempts to redirect the company. If he were given a free hand to make the changes he seeks, they argue, he could revive its fortunes.

There are those within the company who have urged the CEO to make no changes. The way they assess the problem, they are at an unfair advantage because their competitors have somehow convinced customers they produce a better product.  In reality, they say, these competitors do not do a better job. These advisers recommend a coordinated campaign – using all available media – to attack the competition and get those customers back.

Still others in the company believe Imperial should cash in on its long-term relationships with elected officials to get them to take up its cause and ‘level the playing field,’ as they call it, mostly by setting up barriers, through use of government’s regulatory power, to new competitors being created and to prevent existing ones from expanding.

It’s a strategy akin to what American automakers and steel companies applied in the 1970’s, when threatened with foreign competition.  They had the government enact a series of tariffs and quotas to protect their market share. Proponents within Imperial argue that the fact this strategy didn’t work then is no reason not to try it now.

While this debate was raging, Imperial was jolted by more bad news.  It had projected a decline in customer orders for the coming year, but the numbers were showing an even steeper drop than expected.

In another company, these new numbers would prompt radical action. At Imperial, it prompted the hiring of an outside consultant to analyze its operations.

In due time, the consultant returned and offered an action plan: Job One would be to restore Imperial’s customer relations, which he described as “broken.” Job Two would be to abandon outdated work rules to improve quality and productivity.  Job Three would be to diversify offerings and create new lines that customers prefer.  Job Four would be to improve capitalization so it can offer a better product – only this time tailored to the customer’s desires.

“Your competitors have put the customer first,” the consultant wrote in his report. “And unless you do the same, this erosion will continue.”

For once, Imperial took quick and decisive action.  It fired the consultant.