On capital budgeting and innovation

You may recall a boring unit on capital budgeting if you took a finance class in college.  Your prof may have failed made the connection, but primary source of innovation is the capital accumulation and allocation decisions to produce a product/service that solves a customer problem.
School districts raise capital levies and spend money to build and fix schools.  With occasional exceptions related to energy consumption and transportation, districts typically don’t think about an ROI derived from productivity improvement.  That’s why we have 10 million computers layered on top of how we’ve always done things—there was seldom the intent to build a more productive model.
The fatal flaw in the draft i3 grant language is the presumption that school districts will be primary applicants and will drive and scale innovation.   Three reasons this is a bad idea:

  1. Districts add and cut, they don’t invest capital for improved productivity
  2. Districts typically lack project management capacity
  3. Districts don’t (and shouldn’t) take responsibility for innovation diffusion

Some districts will turn in great applications—more power to them.  But schools should primarily be customers not producers of innovative learning products.  Take application development for example.  I’m pretty confident that a dot com team could do more with $500k in six months than a school district could with $2m in two years.  The dot com has incentives for speed, efficiency, quality and scale.  The district has incentives for security and reliability.  It’s not that one is better than the other, it’s just that they play different roles in society.  And it’s why the i3 grant language should embrace and not exclude folks that get capital budgeting.

Tom Vander Ark

Tom Vander Ark is the CEO of Getting Smart. He has written or co-authored more than 50 books and papers including Getting Smart, Smart Cities, Smart Parents, Better Together, The Power of Place and Difference Making. He served as a public school superintendent and the first Executive Director of Education for the Bill & Melinda Gates Foundation.

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1 Comment

Kristy Hebert

Customers not producers indeed! At one point in the history of education transportation was quite the innovation in helping move toward equity. While some systems figured out (after a long time granted) that privatization of their transportation system (i.e. systems are the customers), others still run their own transportation departments! This has become THE department that sets the whole system in motion--and not at a quick speed!! It's an outdated employment system with job security and isn't shut down for lack of performance. Talk about not understanding return on investment--capital or otherwise!

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