Managing Capacity Through School Closures

The Chicago Public Schools system, commonly referred to as CPS, has received some harsh criticism after declaring that there would be massive school closings before the 2014 school year.  The CPS school district has decided to close 53 elementary schools in the Chicagoland area.

As a result of the school closings, hundreds of teachers will lose their jobs or will be transferred to a school that will receive the students from nearby closures.  Not only are the teachers affected by CPS’s decision, but parents have also begun to express their concerns as well.  The current students of closing schools will experience travel distances that are almost double their current commutes which parents believe will add unnecessary danger.

Parent reactions to the school closures have mostly been concerned with the safety of their children.  The surrounding communities have also expressed similar concerns to CPS about overcrowding in the receiving schools and the costs of improvements that will have to be made to these schools. The largest protests have come from the Chicago Teachers Union.  The union is fighting against the massive layoff that will follow the closing of 53 elementary schools and has filed a lawsuit against CPS.

Even through a lawsuit from the Chicago Teachers Union and overall disapproval from the surrounding communities, CPS continues to stand behind their proposal to close the 53 schools.  Why is CPS adamant about the need for closing the 53 schools?  CPS has stated that currently the district schools have the capacity to serve 511,000 students.  However, during the 2013 school year, only 403,000 students were enrolled in the school district.

According to these statistics, the CPS school district is only utilizing 78% of the possible capacity.  The shortage of student enrollment has been very costly for the CPS school district and a problem that needed to be addressed.  In any industry, not utilizing 22% of possible capacity would be a concern.  In such a situation, many companies would try to minimize this shortage.  Two strategies for reducing costs and matching capacity to demand are making staffing changes and closing facilities.

Capacity is a major factor that must be addressed in order for a company to remain profitable.  The Chicago Public School system is attempting to minimize costs and is responding to this situation just as any other business would.  The strategies CPS has elected to implement are generally accepted in many other industries.  The closing of facilities and employee layoffs happen quite frequently throughout the country, but the CPS system is facing much more opposition than other companies usually experience.


Do you think that CPS is facing unfair criticism?

After seeing the enrollment figures, do you believe that the CPS system is acting appropriately in closing the schools?

If not, what would you recommend as a better solution to the issue?,0,2593875.story

Limiting Upgrade Availability

Think back to when the iPhone 5 was introduced to the public.  The expectations of the new device from Apple were at an all time high, and the public’s anticipation to buy the phone was unbelievable.  Sales margins are expected to be higher during periods where new products are introduced, but an aspect that can be overlooked is whether the company will have to provide subsidies for the purchase of the new phone, or if the purchase is made without an available upgrade and at its full retail price.

If a customer has an upgrade available, they may be more likely to purchase a new phone because the company will provide a subsidy that will lower the price.  Without an upgrade the product would be purchased at retail price, and the company earns more.

The service contract is a signed commitment to remain loyal to the provider for 24 months.  This requires that the services on the device, including Internet, text messaging, and phone calls will be paid for throughout the two year time period. An average length of time before a phone upgrade is available is 20 months.  This differs from the signed 24-month contract, and requires that the company provide subsidies more often than the customers renew contracts.

When an account has an available upgrade, the service provider offers a subsidy, deduction of the retail price, towards the purchase of a new phone.  If the customer is upgrading to a smart phone on an account that did not previously require data usage, the service provider will generate revenue on the sale.  This is because the cost of a data plan to the customer is greater than the cost of the subsidy to the service provider.  However, with the increase in smart phones in past years, these sales margins are declining because the customer does not require an increased data usage plan.  While the sales of newly released products increase sales margins, the company often loses out on the subsidy provided to purchase a new phone.

Verizon Wireless has released plans to extend the length of time before upgrade availability to 24 months.  The intent is to lengthen the amount of time between when the company is required to offer upgrade subsidies.  The 24-month period would align with the length of time between contracts and would allow for the company to earn revenues on contracts and acquire subsidy expenses simultaneously. If this change is made, the structure of Verizon’s project management would change.  The company would  likely change its strategy from the introduction of new products to a focus on customer retention.

While this plan would make financial sense for Verizon Wireless, it is different from their competitors. Would lengthening the time between phone upgrades influence your decision to enter into a new contract with Verizon?  How important is the availability of an upgrade to you when considering purchasing a new phone? How could this change in Verizon’s contracting process be debilitating? Would this change give Verizon a competitive advantage?