What Is or What If

Much of contemporary analytics focuses on tabulating and portraying characteristics of existing systems, whether they are for energy supply, health delivery or a wide range of other complex systems.  This type of analytics addresses “what is” or in many cases “what was.” This approach is backward looking, which makes a lot of sense if there are important lessons to learn from the past and carry forward.

There are some situations, however, where the current system is not one to be emulated.  Health delivery is one of these cases.  While medical science has steadily advanced, the delivery of health has not.  The delivery system is a federation of millions of entrepreneurs with no one in charge. Information systems are highly fragmented and rife with incompatibilities. The incentive system rewards delivery of procedures rather than health outcomes.

We need a very different system in terms of how health delivery is organized, operated, and financed.  This requires that we move from “what is” to “what if” in the sense that we need to explore delivery models that do not yet exist.  We cannot rely on empirical data from systems that have not been designed and deployed.  Further, as these will be very expensive systems, we need some way to drive the future before we write the check.

Computational approaches can provide the means to this end.  What we need is interactive organizational simulations that enable key stakeholders to explore alternatives, eliminate bad ideas, and refine good ideas.  As stakeholders come from a wide range of disciplines, these simulations have to include compelling interactive visualizations that allow extensive “what if” explorations.  When stakeholders move the sliders for key model parameters and choose their own assumptions, they become increasingly committed to the shared models they are developing.

Creation of these types of capabilities requires several ingredients. First, several types of computational models must be linked, e.g., agent-based for patients, discrete-event for delivery processes, microeconomic for providers and payers, rule-based for policy, and system dynamics for exogenous phenomena.  Linking such a disparate range of models can be a substantial challenge.

Second, the parameters for component models must be gleaned from large data sets including clinical data, financial data, and claims data.  Using such data to parameterize process models, for example, can be quite difficult, as most providers and payers have not structured their data sets in terms of processes. Instead, data are organized by codes for diagnoses, procedures, and locations. This requires that processes be inferred from data sets never intended to support such inferences, which often involves filtering out special cases as well as mistakes.

Third, interactive visualizations are needed for decision makers to understand and be comfortable with computational approaches.  They need to view the computational models as a means for exploring a range of possibilities rather than as a “magic box” that produces optimal but, unfortunately, often opaque answers. This requires core competencies in interactive computing and decision support systems.

The three competencies outlined above — computational modeling, statistical estimation, and interactive visualization — are rarely found in one individual or even one discipline.  Multiple disciplines are needed, working as a team to tackle large-scale “what if” problems.  Any initiatives to address the transformation of healthcare requires the multi-disciplinary team needed to assure the availability of these competencies.

Smart health is not just about doing what we now do better.  Indeed, Peter Drucker has cautioned us to never invest in improving something that you should not be doing at all.  For health, being smart means being able explore whole new ways of doing things to eliminate bad ideas and refine good ideas, so that we can then invest in improving and deploying these good ideas to create quality, affordable health for everyone.

Controlling the Costs of Healthcare

We continue to anguish over escalating healthcare costs.  To gain control of these costs, we need to understand one essential equation.   The total cost of healthcare is

Total Cost = Costs Per Use x Number of Uses

Careful design of delivery processes to eliminate unwarranted care process variations can decrease the costs per use.  Variations are unwarranted if practices differ from evidence-based medicine for no beneficial reason.  Such variations may yield significant revenue for providers, but if these variations do not benefit patients, they should be eliminated.

Prevention and wellness programs and chronic disease management programs can decrease the number of uses by keeping people out of in-patient treatment because either they do not get diseased or, if diseased, have crucial variables under control.  Such programs involve small investments per person now to avoid large costs per patient later.  These types of investments have repeatedly been shown to yield attractive returns, especially if one attaches value to healthy, productive people, as employers certainly do.

The central issue is how best to allocate resources across process (re)design, chronic disease management, and prevention and wellness to control healthcare costs with equal or better health outcomes.  This logic seems tractable, but is rarely pursued.  Why?  As I interact with executives of more and more providers, two things strike me:

Few executives are addicted to inefficiency.  They simply do not have the information to improve.  They do not understand their processes; do not know their costs, etc.  So they just try to maximize revenue and keep their capacity fully booked.  We are working on methods that take clinical, financial, and claims data and infer the providers’ processes, including the variability in these processes, to then determine which processes, when given attention by clinicians, should be the first targets for improvement.

However, increased efficiency often decreases revenues until providers figure out how to re-deploy capacity.  While it may increase profits by eliminating “bad” revenue, most providers have no means (i.e., information) to make this assessment.   Thus, for example, using non-MD care coordinators plus e-visits leads to increased costs (for added people and infrastructure) but less, maybe zero, revenue.  For this reason, Patient Centered Medical Homes may be terrible investments for providers unless they can re-deploy clinician capacity in profitable areas or, better yet, be paid in part, at least, for keeping people out of the hospital.  We are using the models described above to determine the best ways to do this.

The bottom line is that we know how to reduce total costs, as defined by the above equation, but there are strong disincentives to do this.  The current fee for service payment model encourages providing many services, regardless of whether they provably benefit patients.  The unwarranted process variations generate significant revenue for providers.  Payment for health outcomes can remove these disincentives.

For prevention and wellness, providers should be paid for risk reduction.  For chronic disease management, providers should be paid for keeping blood pressure, glucose levels, etc. in control.  For in-patient care delivery, providers should be paid for provision of the best evidence-based practices.  Payments should be paid for these outcomes regardless of how they are delivered, i.e., doctor vs. nurse vs. care coordinator vs. health coach.  Payment should also be independent of where they are delivered, i.e., hospital vs. clinic vs. telephone vs. Internet vs. at home.

If payment for outcomes is adopted, and it does not matter who delivers these outcomes or where these outcomes are delivered, providers will have enormous incentives to understand and redesign their processes to maximize the outcomes achieved and earn the economic benefits of these achievements.  We all will then have access to affordable, quality healthcare.

The Costs of Conformity

I recently resigned from an administrative leadership position at my university, having served for ten years in this position and an earlier one.  The precipitating event involved decisions by senior administrative leadership that I felt limited my abilities to continue in my role.  My guess is that it was not intended to have that effect, but the leadership was simply not paying attention to such implications.

However, that was just the straw that broke the camel’s back.  The nature of “business” processes in academia has long frustrated me. . This frustration has been greatly elevated over the past year with the reorganization of the research enterprise at the university.  I agree with the vision, at least in principle, but the execution has been excruciating.  Everything moves agonizingly slowly.  Almost nothing happens in the summer.  Important issues are left hanging for many months, or longer.

In reflecting on this, I realized that effectiveness and efficiency may be the spoken goals, but the real goal is conformity, as well as compliance to assure conformity.  We must conform to the policies and procedures of the federal and state governments and those of the university.  We must conform to the faculty governance policies and procedures adopted by the faculty senate.  This includes operating within the academic culture surrounding this governance model.  All this conformity consumes an enormous amount of time and money.

The university’s goal is to produce high value outcomes in education and research.  That is certainly what students, parents, alumni, sponsors, and the public expect.  What about producing these outcomes in a timely and cost effective manner?  It seems to me that the university works as quickly and as cost effectively as it can — within the constraints of all the conformity outlined above.   The result is that the costs of higher education in the US are increasing at a faster rate than healthcare, the current poster child for runaway costs.

Raising this issue at several universities with which I am involved has yielded similar, often somewhat arrogant, responses.  Higher education sees the value they provide as a given and not to be disputed or even discussed.  They see the costs of conformity as inherently justified.  Many will say that it is unimaginable that the processes of the university should be redesigned to be more efficient and effective.  Most of these processes have been in place for decades; some of them for centuries.

Occasionally, someone in a leadership position decides to consider the redesign of some non-controversial processes.  Typically, this involves forming a committee of faculty and staff of perhaps 15-20 people, given the range of stakeholders that needs to be involved. This committee will meet regularly to discuss and debate at length the nature of the current processes and how they might be improved.  All opinions and ideas will be honored and discussed at length.

After a year or two — not counting summers when it is impossible for the committee to meet — a set of recommendations will be created.  These recommendations will represent an integration of all ideas discussed, assuring that all committee members can see their ideas in the compilation. The committee will be warmly thanked after they present their recommendations. Perhaps one or two of the ideas on their long list of recommendations will be pursued, as long as they conform to the relevant policies and procedures.

Moneyball and Football

I have been thinking about how Michael Lewis’ Moneyball: The Art of Winning an Unfair Game, might be applied to American football.  On-Base Percentage was found to be the best predictor of success for baseball.  What might work for football?  I tried a variety of statistics and found that a team’s total number of turnovers (interceptions plus fumbles lost) plus punts was highly negatively correlated with the percentage of games won.  Thus, if a team has zero turnovers and zero punts, it is highly likely to win the game.

It struck me, though, that winning may be a secondary goal in football. This is based on another amazing statistic.  In each 60-minute game, the ball is in play, on the average, for 12 minutes, or 20% of the game.  This is the time from when the ball is snapped until the ball is whistled dead.  If we put this in the context of the 180-minute viewing time, whether you are at the stadium or watching television, the ball is in play only 6.7% of the time.

This allows 93.3% of the time for socializing and watching beer and truck commercials.  The game has been optimized as a marketing and sales channel rather than a sport.  It is a game of arbitrary precision.  Often senseless rules, interpreted with great variability by referee judgments, result in precise placement of the ball, and endless opportunities for more advertisements.  American football is a money machine.

For fans of American football, the first priority is an opportunity to socialize with friends.  The next priority is to be entertained by 300-pound men crashing into each other at 30 miles per hour (relative speed).  Finally, there is football as a sport.  In contrast, for rugby and soccer, seemingly older cousins of American football, the sport comes first.

One can view American football as a sport in the same way that the gladiator contests in ancient Rome were sports.  There was (is) lots of blood and gore, or equivalent.  There are also great opportunities to socialize with friends while grazing on snack foods and consuming large quantities of alcoholic beverages.  Football stadiums even tend to look like coliseums.

Another view of American football is as a reality show.  The competitive tension is orchestrated to keep viewer’s attention, with enough rule infractions, network timeouts, and so on to provide ample advertisement opportunities and enormous revenue.  Although, unlike most reality shows, I still believe that the outcomes of football games are not predetermined.  Thus, I remain convinced that the fewer the turnovers and punts, the more likely a team will win.

Replacing the Old Order

I recently read John Lynch’s Simon Bolivar: A Life (Yale University Press, 2006).  Bolivar played the central role in freeing six Latin American countries from Spanish colonialism.   The eventual domination of his armies and his subsequent nation building destroyed the old colonial order.  However, creating the new order was a much more daunting task than he anticipated.

Bolivar needed to address the interests and concerns of a large set of stakeholders.  Spanish natives living in Venezuela, Peru, and so on had long ruled these countries with iron fists.  However, now that the old order was gone, a wide range of aspirations emerged among various stakeholder groups.  These groups included creoles (native born people of Spanish ancestry), pardos (racially mixed individuals), the people from the vast grasslands (Llanos), native American Indians, and slaves who were mostly black.

All of these stakeholders had long-harbored grievances and aspirations for social justice.  Bolivar’s message of liberty and equality was heartening and provided a rallying cry.  However, the redistribution of land and other wealth was more important to these stakeholder groups.  This made the transformation to true democracy, or even an approximation, quite difficult. New tensions and infighting hindered Bolivar at every step.

As fascinating as this story is, the more general lesson is perhaps more compelling.  Transformation involves unfreezing the old order, moving to a new order, and then refreezing around the new order.  It may be easier to get people to agree to the unfreezing then getting them to agree to move to a particular new order.  Instead, unfreezing may lead to chaos as newly freed stakeholder interests undermine the possibility of any new order.

Perhaps this is why religious and academic organizations, to name just two, cling to old ways in terms of principles and practices. If they allow any slippage, then they expect they will avalanche down the slippery slope of fundamental change. This may enable many creative possibilities.  However, it is also very likely to upset many apple carts.  The old order, despite its flaws, is a source of stability.

Beyond stability, many will have designed their lives, businesses, universities, and so on around the implicit assumption that the old order will persist.  This is even true for those disadvantaged by the old order.  When this order is replaced, there are many losers.  There may also be many more who will respond in perhaps unpredictable ways once they have the freedom allowed by the loss of the old order.  Latin America, as Lynn shows, provides a good illustration of this tendency.

This perspective may make transformation sound hopeless or, at the very least, a process that is inevitably very long and rocky.  One approach to avoiding this is to build the new order in advance of the dismantling of the old order.  More specifically, create a demonstration of the new order in the midst of the old order. This is a typical path for technological transformation, e.g., from land lines to smart phones.

Could Bolivar have taken this approach?  To a slight extent he did, with a bit of nation building along the way.  However, the monopoly of Spanish colonialism repeatedly squashed these efforts.  There is an element of this in technological transformation as well where monopolies like public utilities can block potential innovations because they challenge the reigning order.

However, these types of monopolies do not have armies, guns and gallows.  Liberating countries is decidedly on a very different scale than transforming markets. In fact, it is not just a matter of scale. The behavioral and social components of liberating countries involve a type of complexity that cannot be avoided by simply having a sound “methodology.” Liberation is inherently much, much messier than transforming companies and markets.

Moneyball in Academia?

I just finished reading Michael Lewis’ Moneyball: The Art of Winning an Unfair Game.  Lewis relates the story of the Oakland Athletics and their ability to use scientific management to maximize wins per dollar. I could not help but wonder how their empirically derived principles might apply to academia. What is the equivalent of On-Base Percentage for a university?  And, if we could agree on that, how would we align all of our resources to maximize this metric?

The essence of the book’s argument is that many of the truths that organizations embrace and use to guide decisions are, in fact, myths with no empirical basis in fact. Once you look at the data in detail, you can find what really matters. If your competitors continue to embrace the old (false) truths while you embrace the new empirically based truths, you can gain an enormous competitive advantage.

Of course, the priesthood associated with the old (false) truths will do their best to defend the dogma and discredit the new empirically-based truths, often without even paying attention to the source and nature of the new truths. They will attack the integrity and abilities of those presenting the new truths, typically dismissing them as uninformed and self-serving. (See pages 287-288 of Moneyball.)

But, transformation can happen. The Red Sox adopted the Athletics’ practices and, with a much bigger market and hence budget, escaped the curse of the bambino. For much less money, they relied on Ellsbury and Pedroia while getting rid of the high-priced Ramirez.  The Toronto Blue Jays, led by acolyte of Oakland’s Billy Beane, are similarly pursuing the new model.

I know that a university is much more complex than a baseball team, but I wonder if we are not often trapped by our assumed truths rather that empirically exploring what really matters and how the allocation of our resources could truly improve the value we provide.

Transforming Colombia

I gave a keynote lecture on “Enterprise Transformation” at the Logistics International Congress last Wednesday in Bogota, Colombia.  I also listened to several other talks from government officials in various ministries, as well as a few academics.  I spent quite a bit of time talking with a wide range of people.  Overall, I learned much more about Colombia than I did about supply chains and logistics.

I should put my report in context.  Bogota is a city of 8-9 million people living at an elevation of 8,612 feet on a high plane, surrounded by the Andes Mountains.  Although not far from the equator, the altitude results in moderate temperatures year round.  Colombia has a small upper class (5%), a growing middle class (30%) and an enormous lower class (65%).  Income disparities in Colombia, as assessed using the Gini Coefficient, were the highest in Latin America in 2009.

Colombia’s main exports are agricultural products (e.g., coffee), and commodity natural resources (e.g., coal, gas, minerals).  (Brazil, in contrast, exports airplanes, as well as agricultural products and natural resources.)  Agriculture and mining employ much manual labor, but much of this employment is low-wage “informal jobs.”

Colombia is one of the CIVETS countries, which includes Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa.  These countries are in similar stages of economic development.  Ahead of them are the BRIC countries – Brazil, Russia, India, and China.

National goals, according to several ministries’ spokespersons, are represented by a triangle linking three interrelated objectives: more employment, less poverty, and more security.  They recognize that achieving these goals depends on education.  This poses a couple of challenges.

The high school dropout rate is 20-25% in Colombia, compared to 31% in the United States.  However, because school is only required through the 5th grade, the poor are disproportionately affected.  Many 10 year olds must leave school to go to work to help their families, which tends to perpetuate poverty.  Colombians who are able to attend universities and obtain advanced degrees find a different problem – under-employment and unemployment.

Given the nature of the Congress, there was much discussion of transforming infrastructure related to transportation, innovation, and sustainability.  One presentation indicated nine “technoparques” focused on biotech, nanotech, and other engineering endeavors.

The Ministry of Transportation reported that Colombia ranks lowest among CIVETS countries in terms of “mobility infrastructure” – roads, bridges, railroads, airports, etc.  Colombia is also behind Brazil and Chile, with the costs of mobility quite high in Colombia.  This makes Colombia’s oil, gas, minerals, and agricultural products less competitive.  They are working to get investments, regulations, etc. better aligned with decreasing mobility costs.  They are also working to be more responsive to the damage and destruction of their transportation infrastructure due to major rains and flooding in the area.

Colombia is trying to revive its railroad system, which accounts for nearly zero percent of exports, despite having exports ideally suited to railway transport rather than trucks, for example.  In side conversations, it was noted that the trucking industry has done its best to hinder revival of the railroads.  I also learned that the railroads are deficient across Latin America.  Paul Theroux’s superb travelogue, “The Old Patagonia Express,” wonderfully depicts the state of these railroads.  This book was my companion during this trip.

The Deputy Minister of Transportation also discussed the need to enhance urban mobility.  She indicated that strikes have impeded modernization of the urban transportation system.  Colombia’s average commute time in its urban transportation systems is worst among CIVETS countries.  Road safety, especially traffic-related deaths, is a also major issue.  I was glad to have a driver for my jaunts around Bogota as the traffic was very chaotic and required a seasoned person at the wheel.

The Ministry of Trade reported that Colombia is ranked seventh in Latin America in terms of transportation and logistics infrastructure – Chile is first.  He outlined a variety of initiatives aimed at improving Colombia’s standing.  Despite these many initiatives, one participant told me that the government is not “high velocity.”  Another participant mentioned that the government is strong on planning but weak on execution.

Overall, Colombia’s transformation intentions seem quite well articulated, but progress is very slow.  Many major stakeholders appear to feel entitled to the status quo – as my recent posts indicate, this is common in the United States as well.  This includes politicians, business owners, and the broad, poorly educated working class.  Stability, only recently achieved, is coveted much more greatly than the uncertainties and likely displacements of any leaps in economic development.

One person suggested that Colombians do not like change.  I said it seemed to me that over the past decades Colombia has seen much change, and most of it has had negative consequences.   Thus, despite enthusiasm for new leaders at the federal and city level, Colombians may be justifiably hesitant to embrace the changes being discussed.  From extensive discussions with many people, my guess is that the optimists will prevail.

The city of Bogota is vibrant and exciting.  There are many wonderful things to see, often in the midst of the chaos of road traffic and, in some older neighborhoods, a little grime.  The original old city in La Candelaria contrasts with the upscale Business District (a bit west of the airport) and the exciting nightlife of Zona Rosa.  Monserrate at 10, 342 feet provides a wonderful view of the city from the Andes, as well as a quiet church and two good restaurants.  The Gold Museum and the Botero Museum provide glimpses into historical and contemporary Colombian culture.

Andres DC in Zona Rosa, and the original Andres in Chia, provide amazing restaurant experiences of food and music, with hundred to thousands of fun-loving Bogotanians all in the same restaurant, and décor drawn from the magical realism of Gabriel García Márquez.  The Salt Cathedral in Zipaquirá, a bit north of Chia, provides an amazing experience, especially for Catholics, of a cathedral and numerous chapels, all carved in an enormous salt mine dating from the fifth century BC.  The creation of the cathedral and chapels began in the 1930s to provide places of worship for the miners.

A highlight of this visit to Bogota was a FIFA World Cup soccer game between Colombia and South Korea, in which Colombia prevailed 1-0.  The view of the Andes from the stadium was awe-inspiring.  The logistics of entering and exiting the stadium left nothing to chance.  The security forces were numerous and quite helpful.  Everything was well kept and maintained.  Alcoholic beverages, that might encourage acting out, were not available.  I chatted with the Bogotanian sitting next to me about how well things were done.  He said that the government was determined to overcome Colombia’s image as an unsafe place and, thereby, attract tourists and business investment.  All in all, it was a great event – and we won!

Regarding safety, Colombia had become infamous for its drug wars and the associated violence.  This spring, however, the BBC reported that the International Narcotics Control Board dropped Colombia from its list of countries requiring special observation. Colombia was praised for strengthening its state institutions and its justice system, allowing it to control the supply and demand of drugs more effectively.  More recently, the Los Angeles Times reported, “Colombia’s Cali cocaine cartel, once the richest and most powerful crime syndicate in the world, fell as a direct result of U.S.-led law enforcement and diplomatic pressure about a decade ago. Its toppling remains one of the most significant blows inflicted on modern organized crime.”  The people with whom I discussed these developments were proud of these changes and look forward to many more visitors to Bogota as a result.

Economic development in Colombia may be slower than many would like, but transformation seems nascent.  The friendliness and good will of the many Colombians that I met surely will be the “secret sauce” in this quest for fundamental change. Their eagerness to advance in South America and the world, combined with their enthusiasm, as demonstrated by their passion for food, music, dance and, of course, soccer, will surely enable them to transform their country.

Transforming Public-Private Enterprises: Energy

Most people seem to agree that we need to be more conservative when it comes to energy.  We need to conserve our stocks of fossil fuels while also investing in renewable energy sources.  Our electrical grid is rife with inefficiencies, ranging from transmission losses to power-hungry devices in our homes.  The notion of a Smart Grid has emerged, premised on smart sensing technologies and intelligent control devices.  Numerous TV ads, from a range of companies, show us being able to remotely control everything in our homes from our smart phones.

The EE Times has estimated that it will require a $0.5 trillion dollar investment to bring this vision to reality.  Who will make this investment?  Various studies have shown that consumers would be willing to pay for energy management capabilities that would save them $50 per month or more on utility bills.  However, someone else will have to make the initial investments to bring these capabilities to market.

Electric utilities might be the obvious investors.  Greater efficiencies would enable them to meet increased demand with less capital investment.  States’ public service commissions usually approve utilities rates based on operating and investment costs.  Thus, decreased capital investment, relative to what it might have been, will effectively reduce rates, thereby reducing revenue.  This may be a significant disincentive.

Utilities are usually monopolies in their service areas.  They can set rates at whatever they can get public service commissions to agree.  For companies born and bred in a capitally intensive environment, why would they limit investments and decrease revenues?  Such decisions would not be natural acts for utilities.  Instead, their regulated monopoly mentality is likely to keep them making larger and larger capital investments, securing steadily increasing rates and revenue, and making profits that are safe within this reigning paradigm.

So who will invest and innovate?  My guess is that it will be a non-traditional player, probably a new player.  The impact of Apple on mobile telecommunications offers an interesting example.  The iPod was their first mobile device and the mainstream phone service providers did not see this device as a threat.  Then came the iPhone and the smart phone market mushroomed.  Who will play this role for Smart Grid?  IBM, Microsoft, and Oracle aspire to put the smart in the grid.  Google might be a better game changer.  Or, quite possibly, it could be someone completely unexpected.

Transforming Public-Private Enterprises: Defense

National defense, and acquisition of weapon systems in particular, has long been a target of transformation.  The Packard Commission in 1985 provided a very reasonable set of recommendations for reforming defense acquisition processes.  These recommendations resulted in relatively minor changes.  Blue ribbon committees both before and after the Packard Commission had comparably minor impacts.

President Dwight Eisenhower highlighted the notion of a military-industrial complex in his farewell speech in January of 1961.  He cautioned that the often-cozy relationship between government and defense contractors could result in priorities that were less aligned with the nation’s defense than with the particular interests of the agencies, services, and companies involved.  Fifty years later, this perspective remains relevant.

The acquisition of weapon systems is an enormously complicated organizational process.  A few years ago, we focused on the acquisition of ships.  We learned that if the shipyards could produce ships instantaneously, it would take three years to get one.  The process of buying ships is so complicated that three years are consumed, on average, by the procedures and paperwork associated with acquiring a ship.

The problem, not surprisingly, is that all the various elements of the ship buying process has stakeholders who feel entitled to their roles in the process.  Streamlining the acquisition process would eliminate large numbers of jobs and many companies whose business models were designed to take advantage of how the acquisition system operates now.  Changing the acquisition system would obsolete many business models.  The owners of these business models will not go quietly.

There are also information issues.  There is a lack of transparency of how the system operates, what activities occur when, and how money flows accordingly.  It is very difficult, perhaps impossible, to improve a system when you cannot determine how it is currently operating.

A couple of years ago, I had a series of discussion with a senior defense official focused on what information I could get to employ with the economic models we were developing.  I commented that DoD seemed to collect and archive information on virtually everything, so they should easily be able to provide the information I was seeking.  He said, “You are assuming we have a financial management system.  We do not.  You are assuming we have a cost accounting system.  We do not.  All we have is a checkbook and, usually, we know who we write checks to.”

Finally, of course, there are issues of incentives.  Millions of people are buttering their bread because of how the acquisition system works now.  Thousands of companies were explicitly designed to succeed in the current system.  Hundreds of members of Congress see as their role the securing of as large a portion as possible of the jobs and money associated with the current system.  The incentives are overwhelmingly aligned with preserving the status quo.

Transforming Public-Private Enterprises: Education

We often see dire assessments of our educational systems.  K-12 is judged to be quite poor compared to other developed countries, as reflected in comparisons of educational achievements across countries.  This is particularly true for STEM — science, technology, engineering, and mathematics.  More broadly, our high school graduation rate of roughly two thirds means that one third of young adults are woefully under educated.

Higher education appears to deliver better results.  Our graduate schools still dominate the international rankings.  However, the costs of higher education continue to escalate – tuition in public institutions in many states is doubling every five years.  This is due to steadily declining support for public education by state legislatures.  This is also much evidence of “mission creep” and administrative bloat with an ever-increasing number of associate vice provosts and similar titles.

What is wrong and what needs to change?  These questions can be addressed using the three core transformation constructs introduced earlier – stakeholders, incentives, and entitlements.  There certainly are lots of stakeholders in education, including students, parents, teachers, administrators, employers, politicians and taxpayers.  There are many conflicts among the interests of these stakeholders, including the costs and benefits seen from their various perspectives.

It seems reasonable to assert that there are many instances where high quality education has resulted for well-prepared and motivated students, involved and supportive parents, well-trained and motivated teachers, and administrators, employers, politicians, and taxpayers willing to invest the necessary resources in these types of students, parents, and teachers.  This equation works well in some parts of the country, but does not work in general.

The overarching difficulties are that many students are not well prepared and motivated, many parents cannot be involved and supportive, and not all teachers are well trained, especially to teach ill-prepared, unmotivated, and unsupported students.  Further, high quality education can be expensive, particularly when small class sizes and one-on-one tutoring are needed.

Taxpayers are unwilling to make such investments.  In fact, they may be unable giving the increasing costs of healthcare (e.g., Medicaid) and prisons in most states.  Yet, a lack of education leads to poor health practices.  Lack of education also leads to unemployment and crime.  Thus, not investing in education now results in much higher costs later.

One can argue, therefore, that we have a traditional investment problem.  We need to invest now for later returns in terms of lower costs of healthcare and criminal justice, as well as increased tax revenues from healthy, educated citizens.  But, the investments are needed now and the returns will accrue years later.  No one seems to “own” that future.

Alternatively, the effective discount rate Americans apply to that future is so high that negative consequences are highly discounted, at least psychologically.  Transformation, therefore, does not make sense.  Current stakeholders will not accept the near-term pain of diminished entitlements and long-term stakeholders are not at the table.  There is no sense of urgency.