Committed and Flexible Resources

Robert S. Kaplan

Background Note | HBS Case Collection | February 1997 (Revised June 1999)

Committed and Flexible Resources

Abstract

Stresses the difference between costs committed in advance of knowing actual demand (committed costs) and cost incurred proportional to demand. Committed costs appear fixed since their supply is independent of the amount actually used. Flexible resources are supplied as needed, so their costs appear to be variable with demand. Shows how committed costs can be reduced via a two-step procedure: 1) reduce the demand for the activities performed by these committed resources, thereby creating unused capacity; and 2) manage the excess capacity of committed resources--either by reducing their supply or by deploying these resources to alternative and more profitable uses.

Keywords: Cost;

Format: Print

3 pages

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Citation:

Kaplan, Robert S. "Committed and Flexible Resources." Harvard Business School Background Note 197-078, February 1997. (Revised June 1999.)

All organizations now practice some form of risk management to identify and assess routine risks for compliance; in their operations, supply chains, and strategy; and from envisioned external events. These risk management policies, however, fail when employees do not recognize the potential for novel risks to occur during apparently routine operations. Novel risks – arising from circumstances that haven’t been thought of or seen before - make routine risk management ineffective, and, more seriously, delude management into thinking that risks have been mitigated when, in fact, novel risks can escalate to serious if not fatal consequences. The paper discusses why well-known behavioral and organizational biases cause novel risks to go unrecognized and unmitigated. Based on best practices in several organizations, the paper describes the processes that private and public entities can institute to identify and manage novel risks. These risks require organizations to launch adaptive and nimble responses to avoid being trapped in routines that are inadequate or even counterproductive when novel circumstances arise.

Currently, few health care providers measure and report their patient outcomes, which leads to several problems. Attempts to introduce price transparency without outcomes transparency could trigger a “race to the bottom.” Should Medicare coverage be expanded to non-elderly populations, its much lower reimbursements will create pressure on providers to lower their spending in ways that produce even worse outcomes. Even without Medicare expansion, the lack of systematic outcomes measurement has made the migration from fee-for-service to value-based reimbursements, especially bundled payments, less effective and more difficult to implement. Hidden variation in outcomes prevents providers from learning from others how to produce better outcomes for their patients. We propose that the Congress elected in November 2020 mandate the Centers for Medicare and Medicaid Services to begin requiring outcomes measurement by all providers reimbursed under government Medicare and Medicaid programs.

Working Paper | HBS Working Paper Series | 2019

Intelligent Design of Inclusive Growth Strategies

Robert S. Kaplan, George Serafeim and Eduardo Tugendhat

Improving corporate engagement with society, as advocated in the Business Roundtable’s 2019 statement, should not be viewed as a zero-sum proposition where attention to new stakeholders detracts from delivering shareholder value. Corporate programs for sustainable and ethical sourcing practices, however, have fallen far short of solving the underlying causes of extreme poverty, extensive use of child labor, and threats to the environment and human health. We identify several causes to explain this disappointing shortfall in societal performance, including traditional company policies and incentives that inhibit the implementation of innovative, inclusive growth strategies. We propose the role for a new actor, a catalyst, to help companies forge new relationships with external funders, local intermediary companies, NGOs, and community leaders. The catalyst aligns the multiple stakeholders from multiple sectors into enduring, mutually beneficial relationships that produce more value than that currently produced when stakeholders connect only by transactional relationships. The catalyst attracts funding from public and private sources to invest in the new ecosystem, which can generate attractive financial returns while alleviating poverty and environmental degradation. Finally, the catalyst engages the multiple participants to collectively co-create explicit strategies and scorecards of metrics, which serve to motivate, create accountability, and enable an enduring governance model for a multi-stakeholder ecosystem.

Keywords: inclusion; sustainability; performance measures; Environmental Sustainability; Social Issues; Strategy; Governance; Corporate Social Responsibility and Impact; Business and Stakeholder Relations;

Citation:

Kaplan, Robert S., George Serafeim, and Eduardo Tugendhat. "Intelligent Design of Inclusive Growth Strategies." Harvard Business School Working Paper, No. 20-050, October 2019. View Details

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