Nuclear power plants are cheap to run. The expenses they generate on an operating basis are in the neighborhood of 60% of their conventional cousins. The major outlay of cash for nuclear power comes at the capital stage, building the reactors and such. Billions of dollars go out the door for investments in plant and equipment that subsequently land of the balance sheet as assets, simply because these assets will generate revenue over the life of the reactors. As time marches on, the assets are ‘expensed’ as the revenue pours in. If this is a smart investment, the revenue will be larger than cost over time and profit is made. The only reason this up-front investment is made is because it can be spread out across time. This is called capitalization, and it allows for constant innovation.
Last week, this author heard Newt Gingrich, former speaker of the US House of Representatives, give a speech on the future of health care in America. His basic premise was that it was difficult, if not impossible, to achieve change in health care without the notion of capitalization because the concept of investment in a future state of well being for the individual is not measured. He stated that the health care system was treating symptoms of the past, rather than ensuring the patients future well being. Whether you agree with Speaker Gingrich’s politics or not, his insight on this topic is dead on. It dawned on this author that there are stark parallels in the business/disability space.
The first principle that applies here is sunk cost. This is a concept that all accounting students learn on the first day of class, and it is incredibly powerful. A sunk cost is defined as a cost that has been incurred and which cannot be recovered to any significant degree. They are gone, their impact has already occurred, and unless one is in the time machine business, they cannot be applied to the future. Disability seems to focus on legacy and history which are essentially the same as sunk costs. There are bureaucracies and systems in place today whose sole purpose is to turn over ‘cases’ as they have for decades, focusing on outdated methodologies that show stunningly meager results. Following the rule of sunk cost, when an asset is bought and paid for, and its useful life is over, one needs a new asset, ignoring the past to look forward to future needs. Someone once said to this author that disability was not ‘broken’ it just needed some ‘tweaks’. Well, under the principle of sunk cost, it’s clear that the legacy asset value of old ideas and systems in disability is fast approaching zero, and something needs to change, in a big way.
Disability today is not generating the results implied by its fundamentals.
The solution to an asset whose useful life is approaching its end is innovation. Finding new ways of doing things is a well-worn path in mainstream business. The airplane replacing ships, hybrids replacing gas-fueled vehicles, steel frames replacing cement in high rise building are all examples of innovation that led to increased profitability. Disability must follow the same path.
As always, the key question is, how? There is a debate in disability over the concept of ‘incrementalism’ versus a hard look at large-scale change. Essentially, ‘incrementalism’ advocates taking ‘baby steps’ to add champions on at a time, that change will occur somewhere in the future. It is a risk avoidance strategy. Large-scale change involves turning the entire ship on a new course, or even better, inventing a plane to get to the goal. It is a risk seeking strategy, albeit rationally employed.
In business, baby steps are fine, only if you’re in the baby shoe industry. Reality is, things need to happen fast, and risk needs to be taken. Assess current performance versus where your benchmarks are.
If your firm is close (which no firm is), perhaps tweaks are rational. If your firm is not getting the result expected out of a demographic this size, you have two choices.
One, walk away. If your assessment is that you cannot reach your goals, you need to deploy elsewhere. Somebody will get this right, it just won’t be you.
Or two, research and retool your strategy. Put some great minds in a room and give them a problem to solve along with a framework to solve it. Most great ideas happen exactly that way.
Finally, back to Speaker Gingrich’s speech. Much like R&D, society/the economy must find a way to capitalize intangible assets that lead to tangible economic value in the marketplace. The Speaker refers to health status and outcomes as assets to be capitalized in the health care field, in order to incentivize preventative care and increase cash flow in that area. The same concept applies to disability. Find a way to pool intangible benefits to sit as assets, encouraging activity that creates real economic value.
Akin to building a power plant, business/disability must find a way to spread economic cost across benefit to see change occur. By this simple step, we focus on true value, and get past legacies/debates over how and when. Proven practice tells you how. Measurement tells your firm when innovation is required, and when to move on from a obsolete idea. The future requires ignoring legacies to focus on what tomorrow brings.
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1 comment:
You're absolutely right in the approach one must take Rich. Too often, companies focus on the initial cost of hiring and accommodating an employee with a disability and not on the fact those costs go to virtually 0 fairly quickly.
Typically the changes made to accommodate a single (or a few) employee(s) also benefit the entire employee population but those costs are rarely accounted for in the same way as a similar investment.
If a company amortized or simply expensed its investment in accommodation the same way as, say, upgrading releases of software or improving hardware, then the return on disability becomes much higher much sooner. And it's only in the most unusual cases that expenses for accommodation are even a small fraction of IT productivity improvements.
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