Capital

NBC’s network news reported on the University of Utah Medical Center’s attempts to control healthcare costs at it’s teaching hospital. Using a technique that calculated their costs at a very detailed level, they identified inefficiencies and ways to economize reducing costs by 30%. NBC missed the real story.

During the first industrial revolution of steam engines and looms, capital or wealth was land, buildings, equipment and to a lesser degree the labor of individuals. That combination of wealth producers, land, materials, and human work would remain the model until well into the rise of the second industrial revolution, with railroads, steel, oil, automobiles – large manufacturers and the "Scientific Management" brought about by Frederick Taylor.

Perhaps the most prominent single element in modern scientific management is the task idea. The work of every workman is fully planned out by the management at least one day in advance, and each man receives in most cases complete written instructions, describing in detail the task which he is to accomplish, as well as the means to be used in doing the work. And the work planned in advance in this way constitutes a task which is to be solved, as explained above, not by the workman alone, but in almost all cases by the joint effort of the workman and the management. This task specifies not only what is to be done but how it is to be done and the exact time allowed for doing it.

Beginning to sound familiar?  Taylor’s contribution was to overlay time upon tasks and then organize labor so we could reduce “costs” by reducing time. Human labor was reimagined as a resource that could be efficiently organized, it became human capital. What NBC highlighted was that Utah had determined as best they could their true costs even calculating the cost of staff time at the minute level. And to be fair, this is something that the healthcare ‘industry’ has been a laggard in doing because we do not know how we work at this detailed, task oriented level and we have no real measure of our costs. In reality visualization of work by measures of cost and value has been available for over 100 years. Here’s a simple calculation of healthcare workers ‘cost” based on data from the Bureau of Labor Statistics. You reduce cost by reducing time with automation, by working faster and smarter and by substituting lower cost workers providing identical services. 

But it turns out, some organizations work better than others. Our appreciation of human capital has evolved. Consider the Manhattan Project, employing 130,000 individuals spread across 30 sites that for a total cost of about $2 billion (equivalent to 9 days of the war) produced the atomic bomb. Or perhaps Bell Lab’s research park that developed the transistor, information theory, solar panels and communication satellites; or Xerox Parc that provided the inspiration for Steve Jobs to design the personal computer. The recognition that human capital could be viewed differently from Frederick Taylor found its voice in the work of Nonaka and others in the Toyota Way, which recognized that the interaction of workers was what made for wealth. Those interactions, the social life of work, is a truer expression of our value creation, than simple task completion. Human capital is better described as social capital.  

And this was the point that NBC missed. The savings they ‘found’, their advantage was not in determining costs at such a granular level. Nor was it in utilizing this modernized variation of Frederick Taylor; it was in having a workforce that was so socially integrated that it could work together for this common goal.

There will be a rush to emulate the University of Utah’s knowledge, the financial calculations and techniques, but these efforts will fall short because what needs to be copied cannot; it is their social network, their know-how that makes these “economic efficiencies” possible, not the calculations. Social interaction cannot be centrally commanded; it grows from well, social interaction. You can nudge it as AT&T did in arranging their labs to allow people to meet serendipitously, or by supporting and rewarding teams, not just individuals. All of our institutions have unique social capital, our real wealth comes from utilizing it.

 

Who’s in your social network?