When Principals Can Be Entrepreneurs, Schools Improve

Published December 1, 2003

If principals were put in charge of their individual schools and allowed to run them as small businesses, is it likely the schools would be more successful than if the schools and their resources were directed by a central office?

After studying a variety of public and Catholic school systems in North America, UCLA Professor of Management William G. Ouchi concludes in a new book that decentralized school systems run more efficiently and produce better student achievement.

In Making Schools Work: A Revolutionary Plan to Get Your Children the Education They Need (Simon & Schuster, 2003; ISBN: 0743246306; 284 pages, $25), Ouchi and a team of 12 researchers set out to test the following premise: School districts are more successful when they are managed in a way that allows principals to be entrepreneurs, “managers who take the initiative rather than taking orders.”

Ouchi included three types of large North American school systems in his research sample:

  • Three very centralized public school districts: New York City, Los Angeles, and Chicago;
  • Three very decentralized public school districts: Seattle, Houston, and Edmonton, Canada; and,
  • Three very decentralized Catholic school districts: Chicago, New York City, and Los Angeles.

Ouchi’s research team visited 223 schools, representing at least 5 percent of the schools in each system. In each system the team gathered data about student performance, school centralization, and the amount of money that reaches the classroom. The team focused on the school budgets, the accountability systems, and the achievement of students.

What they found was that how a school is managed matters. Schools perform better on fiscal and academic outcomes when there is a) local control of school budgets by principals, and b) open enrollment, which allows the per-pupil funding to follow the child.

Overall, the decentralized public school districts and Catholic schools had significantly less fraud, less centralized bureaucracy and staff, more money at the classroom level, and higher student achievement.

The decentralized public school districts used an innovative financing mechanism called the Weighted Student Formula, pioneered by Edmonton school superintendent Michael Strembitsky. The formula attaches school funding to the backs of children and in so doing gives budgetary control to each school principal.

For example, in the Seattle system, students are assigned “weights” for supplementary funds for categories such as poverty, limited English proficiency, and special education. The weighting scheme is simple and described on one page in the Seattle district’s budget book. Each child is worth a weight of between 1 and 9.2 depending on the needs of the individual child.

Each school is funded by a basic operating grant from the district plus the weighted funds brought in by each individual child enrolled at the school. The Weighted Student Formula allows individual schools to compete for students and allows principals to control their budgets and tailor their schools to the needs of their specific school populations.

After the introduction of the Weighted Student Formula in Seattle, all principals attended management training programs to prepare them to be CEOs of their schools, with full responsibility for staffing, budgets, scheduling, and marketing.

Ouchi also examined the percentage of a school budget under a principal’s local control in traditional versus Weighted Student Formula districts:

Percentage of School Budget
Under Principal’s Control
Traditional Districts
New York City 6.1%
Los Angeles 6.7%
Chicago 19.3%
Weighted Student Formula Districts
Houston 58.6%
Seattle 79.3%
Edmonton 91.7%

Overall, Making Schools Work offers a compelling model for restructuring school finance, giving principals true control over their schools and offering real public school choice to all students. The book carefully details how this school revolution is playing out in Seattle, Houston, and Edmonton, with many informative stories and solid evidence that local control leads to school success.

Ouchi finds that the three Catholic school systems he examined—Chicago, New York City, and Los Angeles—are the most decentralized. They have very small central staffs, spend the least money per-pupil, and have the highest student achievement.

Those observations lead to the one real criticism of the book: One might question whether it is really necessary to stay within the bounds of the existing public school system and complete the difficult task of change from within the system through a Weighted Student Formula. The alternative would be to move to a direct financing mechanism through vouchers, tax credits, or even charter schools—where per-pupil funding immediately empowers parents and leads to the most decentralized schools of all, with 100 percent local budget control.

The answer might be that Ouchi’s decentralization model presents a politically feasible interim alternative to traditional public school management that has real traction plus examples of successful implementation in Seattle, Houston, and Edmonton. It is also complementary to the No Child Left Behind Act and may be a school district’s best hope to comply with the student achievement and public school choice components of the federal law.

The strongest point made in Making Schools Work is that most school districts merely give word play to local control and site-based management. That kind of “local control” is fraudulent. According to Ouchi, the bottom line is that the money must follow the child. The only true local control occurs when the school principal controls the school budget.

Regardless of how local control is packaged, says Ouchi, “unless and until control gets all the way down to the individual local schools—and the money, too, goes to the schools—nothing will be different.”

Lisa Snell is director of the education program for the Reason Foundation in Los Angeles. Her email address is [email protected].