dynamics of value, The

Health Progress, Sep/Oct 2001 by Maltby, Teresa A

In closing her keynote address to last spring's conference on integrity in the health care market, Ann Neale, PhD, challenged the health care community "to make of the market a graced instrument through which we advance the noble ends of health care." Earlier in her address, Neale named some of the fundamental differences between the approaches of a pure market economy driven by self-interest and the classic concerns for human need and the common good that have traditionally guided a member of the medical profession.

On one hand, Neale noted, is the pure market philosophy, which holds that "all goods and services, including health care, are fungible products that can be bought and sold. Nothing has intrinsic value." On the other hand, she observed, medical people have a "calling, a quasi-religious commitment" to their profession. Self-interest and material advancement take second place to the concerns of patients and community, social concerns with intrinsic value.

Within Catholic health care, the distinction between the two approaches has often been cast in terms of a tension between profession/ministry and margin/market. Given the fundamental differences in perspective, Neale said, tension between ministry and market is inevitable in the health care setting-but there should be no question which is dominant. The teachings of the Catholic Church make it clear that "the economy and production are for the good of the person and the community, and not the other way around."

To better serve the community, Neale said, Catholic health care must develop new models for managing its business. The ministry needs approaches that, first, open the way for more productive dialogue between ministry and the market and, second, reshape the way Catholic health care organizations allocate their time and money. As an example of such an approach, she cited the new "Value Dynamics" economic model developed by Andersen Worldwide SC.*

Like any other business, a health care organization creates value by making the most of its assets. Fundamentally, the value of a business is the value of its assets, both tangible and intangible. This value is determined by the marketplace and reflected in a for-profit's stock price and in the cost of borrowing for a not-for-profit.

The balance sheet-the traditional way of measurfing and accounting for assets-lists only tangible assets, that is, physical and financial assets. In the new economy, Andersen suggests, the most important assets are intangible assets such as leadership, systems and processes, structure, and relationships with employees, suppliers, and customers. These assets, however, are absent from the balance sheet, and leaders frequently consider them difficult to measure and, thus, to manage effectively. The Value Dynamics model is an alternative framework that provides for measuring the impact of both tangible and intangible assets on the organization's market value. As such, it may be a particularly useful tool for transforming the debate between margin/market and profession/ministry into a dialogue that results in strategies that leverage all the assets to create value and express ministry values.

THE VALUE DYNAMICS APPROACH

Managers are not unaware of intangible assets. In an Andersen survey of over 700 top-level executives, those involved in health care emphasized, first, customer relationships and, second, hiring and retaining the right employees as the top two elements of business success. Most of these same executives also reported that the measurements and management of these critical sources of success in their companies are not yet in place.1

The tendency to rely on the balance sheet and ignore the increasingly important role of intangible assets has very practical implications, especially when it comes to resource allocations.

Many health care organizations continue to invest heavily in such physical assets as hospitals, ambulatory clinics, and medical offices. These assets are tangible-they can be seen and touched and are thought to be stable and durable. These investments are perceived to be less risky than investments in such intangibles as people, ideas, and relationships. However, some of today's most successful companies are creating new business models; these models allocate resources for precisely those intangible assets that health care organizations have often discussed but seldom put to maximum use. These companies realize that the real risk in today's economy is to be too heavily invested in tangible assets.

The Value Dynamics model can help health care leaders see how using the full range of their assets can improve both the way they create value and the way they express their values. The Value Dynamics approach demonstrates how intangible assets are sources of economic value and how physical and financial assets are tools for expressing the organization's ministry values.

The Value Dynamics approach focuses on the interaction of five asset categories (see figure below):