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M.B.A.s Talk Trash by John Dillon

The classroom, down a side street in the Roxbury section of Boston, lies beyond a graffiti-graced wall and behind chain-link fencing topped with concertina wire. It's only a few miles away, but a world apart, from Harvard Business School's perfectly manicured Allston campus. Here, the space used for learning-painted bright red and powered by diesel-hauls garbage and demolition debris.

Three Harvard M.B.A. candidates spent part of this past spring semester in these trucks, cruising the narrow streets to learn firsthand the customers and hauling routes of Jet-A-Way Inc., a minority-owned waste-disposal and recycling company. Their task was to dissect Jet-A-Way's operations to determine which of the company's 183 customers were the most profitable. But their detailed study in "activity-based costs" was not just an academic exercise. The Harvard group was one of several teams of student business consultants whose work is aimed at nothing less than halting the cycle of urban decay and despair by fostering inner-city businesses.

The teams are one brainchild of Michael E. Porter, M.B.A. '71, Ph.D. '73, the Christensen professor of business administration and an authority on company strategy and economic competitiveness. Porter has published 14 books and is a sought-after consultant to corporations ranging from AT&T to Royal Dutch/Shell. But three years ago, he began to examine the city streets below those corporate suites. He started by asking why inner cities have remained glaring economic wastelands despite the heroic efforts of community groups and billions of dollars spent by government.

MBA students learn about trash Porter concluded that the decades of effort to revitalize these distressed areas have failed to create many jobs or to raise the incomes of inner-city residents. His prescription was stark-and to some, upsetting. The familiar "social model" for helping inner cities-complete with subsidized loans and job and tax credits-must be scrapped in favor of an economic one. City government and nonprofit community organizations must "cede their historic leadership role" and instead work to help companies prosper in a free market.

Porter's earlier work had focused on the competitive aspects of companies and nations. He examined why, for example, Korean and Japanese firms dominate consumer electronics and German firms still rule the printing-press industry 500 years after Gutenberg. The same competitive advantages that favor clusters of industries in nations also apply to inner-city businesses, he reasoned. Using their inherent competitive advantages-such as proximity to markets and transportation routes-inner-city companies can pull distressed urban areas out of the low-income swamp.

"There already is an economic base in the inner city today," says Porter, a tall man with piercing eyes who punctuates the air frequently with his hands. "We need to build on it�. At the core of what we're trying to do is to get people to think about the problems of the inner city in a different way. Rather than seeing it as an area of hopelessness that can't compete, we'd like people to think about how well it could compete, how it must compete."

An energetic academic who has never dealt solely in theory, Porter was an all-state high-school baseball and football player. In 1973, he became one of the youngest tenured professors at the business school. He has served on presidential commissions, advised foreign governments, and counseled Massachusetts governor William F. Weld '66, J.D. '70, on business and economic strategy. So when he studied the problems plaguing the inner cities, Porter quickly put his ideas into action. The result was the Initiative for a Competitive Inner City (ICIC), a nonprofit organization founded in 1994 that assists city businesses by using both teams of student consultants and corporate advisers.

"We're trying to mobilize the private sector to get engaged in the inner city in a business-to-business way," Porter explained in an interview in his book-lined conference room in Aldrich Hall. "Not by making charitable contributions, not by going in and painting fences on weekends, not by picking up trash. All these things are important. But we believe that the most valuable contribution the private sector can make is as businesses. So we're trying to create through the Initiative a set of programs that can mobilize this private-sector activity in a variety of cities across the country."

Although the ICIC grew out of Porter's work at Harvard, it is not a Harvard institution. About 21 students are selected each year from a pool of applicants drawn from Babson College, the Massachusetts Institute of Technology Sloan School of Management, and Harvard's Business School and Kennedy School of Government; as volunteers, they are paid for their efforts only in course credits. In its brief history, the Initiative has helped 13 Boston-area businesses, from a Hispanic supermarket in Dorchester to a wholesale seafood processor in Roxbury. Additional projects are getting under way in Baltimore and Oakland. Ultimately, Porter hopes to build a national network of participating graduate business schools. He is also recruiting local corporate advisers to provide financial, legal, or technical assistance to inner-city companies.

The ICIC student teams provide a wide range of consulting services, including market surveys and detailed cost analyses. The latter task put Harvard students Greg Wolf, Heather Harde, and Anthony Priest in the shotgun seats of Jet-A-Way's garbage trucks this spring.

A 26-year-old, family-owned business, Jet-A-Way epitomizes Porter's theory of competitive advantage. Its Roxbury location, just two miles from the skyscrapers downtown, gives it a potential leg up on competitors who are also trying to serve businesses in the center city. Across the street is a transfer station for construction and demolition debris-another locational advantage in Boston, where the city government is unlikely to license any more solid-waste facilities.

A profitable enterprise that employs 50 full-time workers, Jet-A-Way weathered a rocky period when its president, Eddie Jeter, died of cancer in 1991. His widow, Darlene Jeter, carried on as the company's chief executive officer and Jet-A-Way was just named 1996 Small Business of the Year by the Greater Boston Chamber of Commerce. Despite its current stability, company executives felt they were relying too much on a gut sense of the business and not enough on an analytical understanding of its service lines. They wanted a better grasp of the costs associated with each customer, with the ultimate goals of tailoring a marketing strategy to win more of the most profitable kind of customers, and restructuring future rates to better reflect real costs.

Wolf, Harde, and Priest got to work. They rode in the trucks to see how much time the drivers spent going from point to point in crowded Boston streets. They scrutinized each component of costs-driver hours, equipment, maintenance, and others-and tallied them according to individual customers. They then assembled the data in a spreadsheet program that Jet-A-Way's managers can use to better understand the costs driving their business.

"We tried to do flow charts for every step of the transaction with each type of customer they have," said Harde. "And then we tried to apply that to the company's financial statements. When we did that, we realized their statements were much more focused on the type of vehicle being used, instead of having a market focus."

The student team quickly developed an appreciation for the unique challenges facing Jet-A-Way's urban enterprise. For one thing, handling a large truck in narrow streets filled with cantankerous Boston drivers is much more difficult than it looks, said Harde. The garbage-truck drivers also showed the Harvard business students the value of client and customer relations. "The interesting thing all three of us found was the great rapport the drivers had with the customers on site," said Harde. "That has worked out really well for Jet-A-Way."

The view from the windshield was only part of the story. Priest, who has a background in operations engineering, used his laptop computer to assemble the data on customers and routes. In mid-April, as Jet-A-Way operations director Pat Coady gave him the final information on customers, miles traveled, and equipment used, Priest fed it into his machine to produce a model showing the costs of servicing each stop. It was a practical application of the activity-based accounting theory he had studied in a more conventional classroom. "This links the class to the real world," said Priest as he tapped the keys. "I did a little bit of costing work before I got to school, but nothing this in-depth."

Michael Porter The 1996 team was the third to visit Jet-A-Way since ICIC called in 1994 to offer its services. John G. Kelso '53, chief financial officer, said each student group has added value to the company's operations. The first team looked at the company's overall structure: its plan for succession as a family-owned business, and its marketing and sales efforts. The second team researched the market for recyclable paper and prompted Jet-A-Way to intensify efforts in that field. And the third team's work-which centered on the construction and demolition side of the business-will further tighten the company's accounting system. "Each project was of a different nature," Kelso explained. "But each helped us learn how to be more professional in a business where we sometimes don't have the staff to be professional. [ICIC] gives us a little bit of a leg up" to compete with multibillion-dollar giants like Browning-Ferris Industries Inc. and Waste Management Inc.

While Harde, Priest, and Wolf analyzed Jet-A-Way's internal operations, another Harvard team worked this spring to examine the broader potential market for a growing city business. Selmac Food Distributors, based in Chelsea, is a wholesaler specializing in Latino and other ethnic foods that it distributes to dozens of bodegas-neighborhood stores-around Boston. The Harvard team conducted research and examined demographic data showing the ethnic mix of surrounding communities. Using the data, Selmac should be better able to target untapped markets, including institutional outlets such as colleges, hospitals, and employee cafeterias, said company partner Andre Medina. "As a young company with few resources, I'm thankful for what they do," he said. "I can't put a price on their service, but the students were very helpful, very enthusiastic."

Like Jet-A-Way, Selmac is a repeat client for ICIC student consultants. At first, Medina said, he was somewhat skeptical. "One of my comments was, how will guys from Harvard help us sell yucas and bananas? But it turned out we really appreciated what they did."

Selmac also received assistance from ICIC's corporate Inner City Advisers-business professionals who provide expertise. Companies like Lotus Development have volunteered to help with computer issues, while the Boston law firm of Goodwin, Procter & Hoar has provided pro-bono legal assistance for title searches and company financing. The Boston Inner City Advisers helped Selmac develop its business plan and obtain financing for its Chelsea warehouse, where it employs 40 people.

The company's retail store, America's Food Basket, employs an additional 102 people in a Dorchester market. Medina described it as a "little nugget of gold"-a thriving supermarket crammed into a 9,700-square-foot site that rings up a phenomenal $10 million in annual sales. The store's success, Medina said, is further proof of Porter's theories of competitive advantage. While inner-city residents may not be as rich as their suburban counterparts, the high population density of the urban core means there's a huge potential market. Boston's inner city has an estimated total family income of $3.4 billion-a spending power per acre that is actually higher than in surrounding suburbs, Porter has found. He maintains that tapping this undeveloped market should be the first step for companies looking to harness the competitive advantages of operating in the urban core-a point Medina and his partners have proved by building a business tailored to local demand. "We concentrate on mainstream products that neighbors in our area consume," Medina said. "So we're capitalizing on this heavily populated area."

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