Sylvan Learning Systems Case Study

Sylvan Learning Systems

Case Study

The Sylvan case study illustrates the challenges of building value and improving business performance through an acquisition and diversification strategy that did not coincide with the capabilities and competencies that originally built the Sylvan brand. Sylvan was founded by W. Berry Fowler in 1979 and during his six year tenure, Berry developed the franchise business model, training and educational programs, and teaching methodology that provided Sylvan with a competitive advantage in the education industry.1 Berry Fowler built his business strategy through an intimate understanding of customers needs and developed Sylvan's core competencies around providing supplemental education designed to fill the educational gaps experienced by students. 1 Upon Berry's departure, Sylvan's new CEO, Douglas Becker, embarked on a corporate-level strategy of related diversification. However, this strategy did not successfully translate into financial economies between businesses nor did it obtain significant market power through these additional levels of educational diversification.2 To that end, this case study will look more closely at Sylvan's process of diversification and acquisition strategy, management's leadership as Sylvan transitioned from their founder and the new course the organization charted to address additional challenges for the new millennium.

W. Berry Fowler founded Sylvan Learning Center with an investment of $14,500 in 1979.1 As a former teacher and through his own experience of receiving tutoring help during college, Fowler hoped to prevent students falling short academically by filling the educational/learning gaps left by students' primary educational provider.1 During his six year tenure, Fowler built Sylvan's competitive advantage through its low cost franchise model, educational programs and teaching methodology. Of particular importance to the success of Sylvan Learning Centers (and sustained competitive advantage) was the ability to capitalize on the expertise and resources of local franchise owners (Fowler lacked the capital to expand on his own) and gain maximum benefit from knowledge they diffused throughout the organization.2 Additionally, through a focused strategy of augmenting K-12 educational services offered by the public school system, Sylvan was able to capitalize and to integrate their intellectual and capital resources on a niche segment of a fragmented educational system.1 Fowler placed Sylvan in a complementary position with the public school system and not as their competitor.1 Sylvan further differentiated their services by tailoring a student's program based on the specific skill gaps of that individual.1

In 1985, Fowler sold Sylvan Learning Centers to KinderCare for a $5 million profit. Under KinderCare, Sylvan grew from 100 tutoring centers to over 300, with very little change in Sylvan's business model, materials or methodology.1 However, in 1991, Sylvan Learning Center entered a period of fresh growth with the arrival of a new CEO, Douglas Becker. Along with his partner, Chris Hoehn-Saric, they brought an entrepreneurial spirit to the organization. In the corporate office, they altered Fowler's original strategy of exclusively franchising in order to grow the learning centers. Additionally, they expanded Sylvan's focus beyond K-12 education; signaling a shift from a single business corporate-level strategy to a more diversified strategy. While the previous 14 years of Sylvan's growth was from within, Becker pursued acquisitions to not only achieve a first-mover advantage in emerging (but fragmented) educational markets, but also to reshape Sylvan's competitive scope and advantage through developing a portfolio of businesses.2 To that end (during the early 1990's), Becker and Hoehn-Saric acquired related businesses in adult education (domestically and internationally), corporate training, and English language businesses.1 To further fuel Sylvan's development of their diversified businesses, Becker took Sylvan public in 1993. Up until 1998, Sylvan's stock performed extremely well, reaching a high $33.50 per share in February 1998, up from $4.89 at the beginning of December 1993.1

In 1998, Douglas Becker altered Sylvan's vision. Becker stated, "Every couple of years I can see us spinning off a company. I want Sylvan to be a generator for the education industry."1 While Becker still wanted to provide high-quality education, he was more interested in developing leading edge capabilities and markets for the future so Sylvan wouldn't miss emerging opportunities. Over the next two years, Sylvan aggressively expanded internationally with acquisitions of additional learning centers and private university franchises, and domestically, with acquisitions to capitalize on the growing trend of distance learning and the power of the internet. The acquisitions were meant to not only build on its dominant share in K-12 supplementary education but also to develop new post-secondary opportunities.1 And at the core of Becker's strategy was to transfer Sylvan Learning Centers' core competencies and educational expertise internationally and to use the Learning Centers as a springboard into other related services such as test prep, teacher training, and English language instruction.

The result of Becker's acquisition spree did increase revenue. In 1997, Sylan had revenues of approximately $171MM.1 By 2000, Sylvan posted revenues of approximately $317MM. 1 However, operating income began to dramatically suffer. The declining profit was the result in Sylvan's shift in strategy to growth through acquisitions. Before, Sylvan grew primarily through increases in franchising, where costs were kept low due to limited assets