A Scarce Resource

A Scarce Resource

We still haven't worked through the idea of time as the scarce resource. When the costs of what we sold were mainly raw materials and labor, we became efficient about consuming those things. But now all our costs are fixed costs with regard to time. We build software systems and factories that cost the same whether we use them or not. Therefore, the more efficiently we use the time of those expensive resources, the less they cost.

If the scarce resource is time, we need a management system that measures return on time, for people and for capital. Michael Rothschild invented an accounting system for manufacturing that, instead of doing normal activity-based costing, allocates costs according to the degree to which an activity uses up our bottleneck capability. So if painting is the bottleneck in your automobile factory, allocate cost based on the percent of the paint capacity you use, because that's what your gating factor is. If management time is the gating factor, then we need to assess return on that asset and use it to allocate time.

In the industrial era, financial capital was a scarce resource, so return on equity became the measurement of success. But if you think a little more broadly about life, the scarce resource is time. That's true of the consumer, it's true of everybody in all their roles, it's true of a lifetime, and it's true of a business.

Christopher Meyer is vice president and director of the Cap Gemini Ernst & Young Center for Business Innovation in Cambridge, Mass., which identifies and defines responses to issues that challenge business. His personal research interests include complexity, self-organizing systems and the development of the "connected economy."

This article was originally published on 11-02-2002
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