Coronavirus Day Sixteen 😷

How do we manage or align the values of the public sector with the private sector? Can private business successfully assist the United States government while still maintaining their margins, obligations, and responsibilities to other stakeholders?

There was an article in the New York Times this morning, “The U.S. Tried to Build a New Fleet of Ventilators. The Mission Failed,” by Nicholas Kulish, Sarah Kliff and Jessica Silver-Greenberg. Within the article, the authors discuss the realization and attempted remedies of a major shortage of life-saving ventilators. Within the article, the journalists interview people familiar and involved with the project, code named Aura, as they attempt to purchase up to 40,000 new ventilators for the CDC (Centers for Disease Control and Prevention) pandemic stockpile in 2008. In accepting bids for potential purchase, the Biomedical Advanced Research and Development Authority (a division of Health and Human Services) asked interested vendors to submit bids/ideas for cheaper and smaller ventilators. The agency was looking to drive costs down from approximately $10,000 to $3,000 per unit, all while incorporating design innovation to make the units smaller and more easily stored.  While the contracted firm recognized the probability that bringing a new product to market under very tight budget constraints may not in itself be profitable, the management ultimately viewed the task as a loss-leader. Meaning, while the actual U.S. government contract may not have great margins they thought such an investment in R&D would pay off once they brought the product to the mass market. Hospitals, other countries, etc.  

Ultimately the product was never brought to market and the idea never came to fruition, because the contracted firm was bought out by a larger firm during a medical device industry consolidation period in the 2010s. It appears, at least partially, that the buyout was a decision to stifle innovation in a field where the large players saw little value in updating/upgrading the ventilator product. After the contracted firm was absorbed, the larger firm balked at the contract, complained it was not profitable, gained some concessions from the Federal government, but ultimately never completed the contract. This mis-alignment between government needs and goals of the private sector come at odds with each other.  

This conundrum is complex and multifaceted, but taken in a broad view, perhaps not unattainable. The view of the contracted firms executive management seemed sound in a long term plan. While it may not have been a widely accepted position in the 2010s decade, as discussed in a previous post, the idea of corporate social responsibility is becoming increasingly popular with large company CEO’s recognizing the potential long-term benefits surrounding the idea of making decisions with all stakeholder’s concerns taken into account. This case is easily proven in our current environment, This quarantine is not financially valuable to anyone, except a very few. The other point worth noting here is the failure of the market itself.  The idea of creative destruction did not seem to apply here. Where under normal rules of competition many would assume the advances in technology and features would inherently climb as the product moves through its product life cycle. While the market for ventilators is likely not large, the replacement market for a new one of the same thing is likely even smaller. However, it would seem within the hospital setting where space is a continual problem and only available at a premium, a physically smaller unit would seem lucrative to both the user and the supplier. Not to follow a tangent, but in the article cited above there was also discussion about the timely training necessary to properly administer a ventilator.  This too may be considered when making purchase decisions.

While working to align values and create contracts or initiatives which are mutually beneficial to both the public and private sectors here are some ideas to consider:

  • Corporations build service into their corporate mission and vision statements. Record and follow a set of guidelines to encourage participation in national, state, and local contracts as a percentage of business with defined margins and a statement defining the incorporation of innovation.
  • The Federal government considers/evaluates a grant or subsidy program in conjunction with federal contracts to encourage innovation by meeting a threshold structured around time allotted and percentage change of improvement within a product. 
    • Calculating percentage change: Perhaps conducted by a panel or board to determine usefulness and/or effectiveness of change.
  • Corporate and/or Federal government partnerships with Universities (think National Science Foundation) to design and create innovative prototypes which can promote learning, critical thinking, problem identification, and lower private sector costs for such ideas by eliminating some research and development fees. 
    • Disclaimer: It is likely that the private sector may prove to be better at this, but simply an idea to solve a problem.

In closing, as a culture we need to create more focus around ensuring our decision-making processes begin to take an increased consideration for what is necessary and honorable to our society. This includes executives and decision-makers in both the public and private sectors of our country. Recognizing the continued near misses of SARS, MERS, Swine-flu, etc. People within the CDC and Health and Human Services should continue to ask for funds and raise awareness to solve such issues in a more timely manner. Likewise, executives within the private sector, especially firms intimately familiar with the supply chain, should look for markets and methods to assist in meeting such needs while still being able to satisfy their investors, their revenue goals, and their company missions. Collaboration and a focus on the greater good is necessary. Humanity may depend on it.

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