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Could the ‘gig economy’ be the ultimate salvation of a troubled residential care sector?

For Des Kelly OBE, the outlook was bleak.

“Above all, Kelly is dismayed at social care’s continuing funding crisis and he envisages no early solution. He says that he “can’t see” the government making good its promise to implement in 2020 the postponed Dilnot funding reforms, and he fears that care providers will be left with no alternative but to continue to squeeze people who pay for their own care to compensate for the shrinking value fees paid by councils and the NHS.”

And this is not simply ‘moaning’ of the highest magnitude.

The distinguished King’s Fund opined recently as follows.

“The picture that emerges is of social care providers under pressure, struggling to retain staff, maintain quality and stay in business; local authorities making unenviable choices about where to make reductions; a complex set of causes of delays in discharging older people from hospital; and the voluntary sector keeping services going even when funding was curtailed.”

And the headlines aren’t great.

care home crisis

But there are reasons to be cheerful.

Uber is  doing very well.

Uber Technologies Inc. is an American worldwide online transportation network company headquartered in San Francisco, California. It develops, markets and operates the Uber mobile “app”, which allows consumers with smartphones to submit a trip request, which the software program then automatically sends to the Uber driver nearest to the consumer, alerting the driver to the location of the customer. Uber drivers use their own personal cars

Its financial success has been recently confirmed after new accounts revealed the taxi technology’s drivers billed more than £100m in UK fares last year, leading to a doubling of profits at its parent company.

Uber London, the taxi app’s UK holding company, recorded a profit before tax of £1.83m, up 105% on the previous year, on the back of revenue that more than doubled.

Airbnb is also doing well.

Airbnb is a peer-to-peer online marketplace and homestay network that enables people to list or rent short-term lodging in residential properties, with the cost of such accommodation set by the property owner. The company receives percentage service fees from both guests and hosts in conjunction with every booking.

Hard data on the financials of Airbnb are difficult to obtain, but it has been reported in April 2016 that a new estimate by US investment bank Cowen & Company predicts that the bookings site will process $12.3 billion in reservations this year, up from an estimated $7.2 billion in 2015.

The leading businesses that are advancing the concept of the “sharing economy” or “gig economy” are not simply easily dismissed as ‘insurgents’. The size and scale of Uber, Airbnb and several other firms now rival, or even surpass, those of some of the world’s largest businesses in transportation, hospitality and other sectors. The United States Department of Commerce are exploring now this important sector.

They have explored a definition of “digital matching firms” that exhibit the following characteristics:

  1. They use information technology (IT systems), typically available via web-based platforms, such as mobile “apps” on Internet- enabled devices, to facilitate peer-to-peer transactions.
  2. They rely on user-based rating systems for quality control, ensuring a level of trust between consumers and service providers who have not previously met.
  3. They offer the workers who provide services via digital matching platforms flexibility in deciding their typical working hours.
  4. To the extent that tools and assets are necessary to provide a service, digital matching firms rely on the workers using their own.

A “disruptive innovation” is just a strategy to help entrants dislodge long-time incumbents and it has been argued that Uber is not disruptive to taxis is that it does not meet the classic tests of a disruptive innovation because it did not originate in a low-end or new-market foothold. However, it has been noted that, before taking on taxis, Uber started in the black limousine car market. There appears to be more widespread agreement that Uber is disruptive relative to black limousine car services.

It is still uncertain the extent to which regulators can dent the profitability of such services. For example this week in England, the judiciary ruled that Uber drivers are not self-employed and should be paid the “national living wage”, a UK employment court has ruled in a landmark case which could affect tens of thousands of workers in the gig economy.

This means that the ride-hailing app could now be open to claims from all of its 40,000 drivers in the UK, who are currently not entitled to holiday pay, pensions or other workers’ rights. Uber of course immediately said it would appeal against the ruling. The pesky thing about employees in any sector is that they represent an important source of fixed direct costs to the budget sheet, and they can be subject to employment rights according to jurisdiction, e.g. sick pay, maximum number of working hours, minimum wage.

Can there be a ‘disruptive’ approach to the care home sector? Or, rather, is there is a need for a ‘disruptive’ approach to the care sector?

Disruptive care might involve ‘flexible’ staff attending to people in ‘flexible’ residences.

One could argue ‘yes’ in relation to tests proposed in an article in Forbes.

1. Does it target non-consumers or people who are overserved by an incumbent’s existing offering in a market?

Yes, a new disruptor could offer a care service to meet a huge demand in a market which can excruciatingly expensive for care home ‘customers’.

2. Is the offering not as good as an incumbent’s existing offering as judged by historical measures of performance?

The answer to this question is unfortunately tempered since it is known that the standard of care homes is not known to be ubiquitously good.

3. Is the innovation simpler to use, more convenient, or more affordable than the incumbent’s existing offering?

A disruptor to the care home might offer living in a home with ‘flexible’ care staff recruited according to complexity of need, such as whether a person had complex health and social needs or not. It might be considered advantageous to not have residents rooted to a particular physical building such as a ‘care home’. But there are some very major arguments potentially against this. Firstly, it would be anticipated that more inexpensive staff did not necessarily mean less skilled staff (for example without appropriate training and who were not subject themselves to any form of accountability of regulation). Secondly, the social aspects of residents meeting new people is thought to be a society advantage of care homes, mitigating against loneliness or lack of social inclusion which might accompany a diagnosis of dementia, for example. The major threat is of course to quality of care, and this could be particularly significant to patient groups who cognitively can become very disoriented through rapid turnover of the environment including staff.

4. Does the offering have a technology enabler that can carry its value proposition around simplicity, convenience, or affordability upmarket and allow it to improve?

Taking the parallels with other ‘disruptors’, there would be financial savings on eliminating the need for middle managers in healthcare, and to get rid of the fixed costs for upkeep of buildings (which could be substantial in certain metropolitan areas.) A ‘disruptor’ might, furthermore, be able to scale its offering in a much more pragmatic way that a care home with a certain building, certain number of residents, and certain number of permanent staff.

5. Is the technology paired with a business model innovation that allows it to be sustainable with its new value proposition?

It is argued that, “central to the Uber question is whether its low pricing has been used just as a marketing technique to enable it to acquire new customers or whether it is in fact housed in a business model that allows it to sustainably offer its services at lower cost. Without access to Uber’s financials, we don’t know for sure..” In England, if the business model can be profitable in the long run, it might be that private equity is able to kick start it in the form of funding appropriate social enterprises through instruments such as social value impact bonds.

6. Are existing providers motivated to ignore the new innovation and not threatened at the outset?

Disruptive innovation is a theory of competition with game theory at its heart; it posits that if you take a “disruptive” action, then the incumbents will be motivated to ignore or flea from you initially—and when they do fight, it will be largely futile.” It is indeed likely that with mobile staff and mobile residences (as in Airbnb) the old incumbents of the care sector will ignore the risky care disruptors? But it is worth noting social trends on this – according to many surveys, many older people would prefer to live at home rather than in residential care. However, it is worth noting that there are many good reasons for some people residential care is ‘better’ than living (often alone) at home. But on the other hand, the same surveys for England at least prefer a properly funded health and social care system from general taxation, and further marketisation of the NHS and social care systems, which have been problematic for England, are likely to go down like a lead balloon unless done surreptitiously and in stealth.

I am ideologically a ‘statist’, and the risk of liberalising this aspect of social care would be to drive down standards for the bottom line, for a race to the bottom, where nobody is accountable (for example for the obviously criminal behaviour by some Uber taxi drivers). For an issue such as social care for some of our most vulnerable people in society, for some it will not be a price worth paying. For others, it remains in the post-Brexit world an “opportunity”.

But please don’t shoot the messenger.

 

@dr_shibley

 

 

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