Fight boils amid Kumon effort to return to founder’s roots
A lofty attempt to instill discipline into North American Kumon centers is causing dissent—and insults, ranging from “spurious lies” to “prison camp.” As it tries to re-brand, this education business is getting schooled.
Kumon North America executives have toiled for more than a year to bring the education franchise back to its roots, to return to the vision of its revered founder Toru Kumon, the Japanese math teacher who believed in empowering generations of students to be confident, lifelong and especially self-directed learners. Centers in Canada, the United States and Mexico had strayed from that discipline, with profits and results lagging behind counterparts around the world.
But the high-minded effort is causing dissent, namely from the IAKF, the International Association of Kumon Franchisees. Its attorney, Andrew Selden of Briggs & Morgan in Minneapolis, sets the tone by blasting away at the franchisor’s management style. “It’s very North Korean. They’re paranoid. They’re snooping. They’re intimidating people. It’s an atavistic management philosophy that really has no place in franchising,” he says. “They treat the system like a prison camp, and it’s just not working.”
Management’s side uses inflammatory language, too. Robert Lichtenstein, corporate counsel for Kumon North America, based in Teaneck, New Jersey, calls the IAKF a “rogue” organization, and questions whether it has more than a handful of members. Asked if management removed dissenting members from its newly relaunched franchisee advisory council, as the IAKF claims, he’s adamant. “Absolutely not, and that’s a spurious lie, and I will unequivocally state that whoever is putting that out is intentionally, and with malice aforethought, misrepresenting Kumon’s position.”
Kumon is insisting on commercial real estate locations, like this one, for its centers.
He continues: “No matter what the position the company has taken, no matter what the accommodation the company has attempted to make, no matter what the olive branch we’ve extended, we’ve been met with duplicity.”
For a franchise with the lofty mission to spur higher educational achievement among young people worldwide—and a track record that claims 4 million students in 47 countries and operating for more than 50 years—this fight is looking like a down-and-dirty playground brawl.
‘We were kind of lax’
Joseph Nativo is the CFO of Kumon North America, so he could see firsthand that the 1,514 centers on this continent were in a sorry state compared to centers in Asia. One-year retention of students was less than 50 percent, meaning that half the students were not even staying a full year. “And Kumon is long-term, so they’re never going to see the true benefits of the program,” he says. In Asia, one-year retention tops 90 percent.
By 2008, the average selling price of a center here was $86,000, not a rewarding total to any operator who had poured a couple of decades of work into the business and was looking to retire. The average enrollment had sunk to 145 by that year, and franchisees say you have to have at least 200 to make a center go.
Nativo was one of a group of executives who headed to Japan for training, to observe how the program was supposed to work. And he was amazed—as many as 300 students in a center, studying on their own at increasingly higher levels as Toru Kumon intended, with just five or so adult employees providing a bit of hands-off guidance.
By contrast, the North American centers had devolved to a tutoring format that paired an adult instructor with every one or two students, a style familiar to Westerners who favor helicopter parenting, but anathema to Kumon. “We were kind of lax,” Nativo says about the years leading up to 2012, “and we kind of left it up to the franchisees. But we recognized we weren’t producing independent learners. We knew there was a fundamental flaw.”
Nativo, like other Kumon executives and most of its instructors, is a believer in the system. “Our founder believed in self-learning. He designed the materials starting at very basic, teaching students how to count, and then going all the way up to pre-calculus,” Nativo explains. “He wanted to show he could get kids doing calculus through self-learning. We have hundreds of thousands of success stories. We’re time- tested. We stick very close to our conviction, that our materials work.”
Fortified by the arrival of a new president for North America, Akira Hamanaka who had worked in the Kumon system around the globe, executives developed and launched CTI, or the Center Transformation Initiative in 2011. Emphasizing they are easing in the changes over time and offering subsidies to offset some of the costs, Nativo says they’re asking centers to, for example, take out the small tables that lead to one-on-one tutoring in favor of the independent-learner format.
They’re requiring centers to locate in retail locations, not the church basements or community centers where they might have operated before. They are requiring operators to spend $600 per quarter on local marketing, and opening five days a week and eight hours a day, not the few part-time hours that centers used to do.
“People don’t like change,” Nativo allows. “You have to remember we kind of loosely operated the operation prior to 2012.” And now the trouble is beginning to boil.
‘A great increase in stress’
Nicole Smith has been a Kumon franchisee for 17 years. She started in Montreal, building up a center and then selling it before moving to Ontario a couple of years ago and opening a center in Hamilton. She is president of the IAKF, which covers North America. She won’t specify the number of members but says it is growing, with most from Canada and America and a smaller group from Mexico. The IAKF website claims it membership is more than 400, representing more than 35 percent of North American total student numbers, with a goal to surpass 50 percent.
Smith says she called Franchise Times with the association’s complaints because she’s concerned about the brand. She says she supports Kumon’s Center Transformation Initiative. “It’s a facelift across the board.” But the pace of change is too rapid, and especially with the requirement to locate in commercial real estate spaces and stay open full-time, it’s cutting into profits. “We’re hearing all of those things—10, 20, 50 percent increases” in costs. “It can be a devastating impact depending on what you’re doing with your staffing.Smith says the IAKF is trying to work with management, and is not intent on being antagonistic. “I have seen a great increase in the amount of stress in people. This is the kind of business where people are tremendously loyal. They love the program. And as an association we’re looking to work in a positive way with the company, and we’ve been trying to advise them that we want to make changes that are sustainable.”
“How can we do this without ballooning?” she asks, referring to the costs. “How can we do this without going bankrupt?”
A particular sore point is the Instructor Advisory Council, Kumon’s version of the franchisee advisory council that the brand re-launched in 2012 after years of dormancy. Smith said the association “enthusiastically” supported the council. “They have no real influence, but they’re a way to communicate with the franchisor,” she says. But then some members who were elected to the board were removed, and Smith believes that was in retaliation for their complaints.
“Their response was, those people who were the most vocal have found themselves excluded, removed from the council, through sudden policy changes. Oh, and by the way, Oops! That means that you won’t be eligible any more” to serve on the council, she says.
The IAKF got really riled, Smith says, by the plight of Janet Kennedy and her husband, Rich, franchisees in Tampa, Florida. “This was a franchisee who was relatively new, very enthusiastic, and in five years had built up a center from 0 to 300 students, and someone working hard within the Kumon system for positive change. She was one of the franchisees, though elected to the advisory council was suddenly removed for a policy change.”
The Kennedys, reached by phone, say Janet became ill last fall after a stressful incident that involved firing a staff member. Rich, who had been doing the books, stepped in to keep the center operating while his wife received medical treatment. After a flurry of phone calls back and forth with franchise management and much disagreement about keeping the center open, “within 10 days they issued an involuntary termination,” Rich says. “We asked for support because we had paid an extraordinary amount” in royalties over the years to operate the center. “Clearly the treatment we were receiving was different from others.
“They took 28 percent in royalty, and our net profit for the five-year period was $10,000,” Rich says. “And that was well over 200 students. And what they have done this year is they changed the staffing model. It took a profitable center with nearly 300 students and turned it into a center that was losing money.” He says attorneys are considering what to do next, and they’re not ruling out legal action.
He and Janet were nearing retirement, Rich says, and want to recoup their initial investment, which was $60,000. “I had to put another $30,000 into it just to close the center. It’s really a cautionary tale, in some ways. Unfortunately I would say to other franchisees, you’ve got to be very careful because you don’t know where it’s going to land you.”
Lichtenstein, the corporate counsel for Kumon North America, vehemently denies the Kennedys’ claims. “We truly believed we had done everything we could have done for that center to remain open,” he says, after detailing a list of actions that was nearly as long as the Kennedys. And he repeats his denial of retaliation. “We train our field staff, our branch managers, to know that they are partners, and their job is to make sure the franchisees succeed. And if any field staff ever intimidates them, that is absolutely unacceptable conduct from our view.”
Nativo maintains there’s nothing to the franchisees’ claims, except for resistance to change by a few. “We feel the IAKF is completely adversarial and they do not conduct themselves in good faith. But nonetheless we have open forms of communication,” Nativo says.
Smith of the IAKF sums up the situation this way: “The franchisor, unfortunately, has become quite hostile. They’ve communicated in every way that they really would like compliance; they would like agreement with their policies and their direction. And any form of bringing up issues they see as negativity that needs to be squashed.”
She was pleased with an email from Kumon North America President Akira Hamanaka on February 6, notifying franchisees that Savio Rebelo, formerly chief operating officer, resigned effective February 4. The management team had presented itself as a “united front” until recently, Smith says, yet this move shows there was internal strife.
So a franchisor sees things decidedly one way, and some franchisees see it completely the opposite. Both sides say they want to avoid litigation. “I almost never think of legal action, because courts can’t solve business problems. It’s not illegal to be inept,” says Selden, the association’s attorney.
What is clear from the opposing viewpoints: Kumon’s attempt to re-brand their franchise is teaching some very hard lessons.