Posted by: knightbird | March 19, 2015

Wasting Opportunities for True Change

Nelson and Winter developed a unique theory of change in their book An Evolutionary Theory of Economic Change. Organizational behavior is dependent on a host of negotiated “routines” among employees at different power levels and social strata. A well liked employee who is sociable and well-connected fare well in this environment. Toxic leaders also fare well until a crisis exposes the routines as inadequate to meet the needs of the organization. When this happens, the organization has a perfect opportunity to change the routines. Leadership must step in and alter as many routines as is feasible. It takes a focused, concentrated effort, and even then, only the critical offending routines are likely to be changed. It’s definitely not a Lean Thinking approach, but it does achieve measurable results, depending on the leader.

This story comes from “The Power of Habit” by Charles Duhigg. An 86-year-old patient came to the Rhode Island Hospital (RIH) Emergency Room (ER), the only Level 1 trauma center in Southeastern New England. It had a great reputation as a teaching hospital for Brown University and innovation in a number of areas. A head scan revealed a subdural hematoma within the left portion of the patient’s cranium. ER paged the Neurosurgeon on duty to review and he recommended immediate surgery. When he finished the procedure he was in, they had the patient prepared for surgery. The surgeon rebuffed a nurse who alerted him to an absence of information about the surgery site on the patient consent form. The surgeon proceeded to open the wrong side of the patient’s skull. A 1-hour surgery turned into 2 hours, and the patient died 2 weeks later.

According to some nursing staff, RIH was referred to as a “Glass Factory ” because it could come crashing down at any time. RIH was filled with dangerous routines and a corrosive culture. Nurses communicated about Doctors with different colors to communicate Doctor arrogance. “Blue meant ‘nice,’ red meant ‘jerk,’ and black meant, ‘whatever you do, don’t contradict them or they’ll’’ take your head off.’”

The toxic nature of the organization was revealed as it sank into a period of medical errors so severe that one nurse said:

“’It felt like working in a war zone,’ a nurse told me. ‘There were TV reporters ambushing doctors as they walked to their cars. One little boy asked me to make sure the doctor wouldn’t accidentally cut off his arm during surgery. If felt like everything was out of control.’”

Imagine hearing a young boy ask you not to let a doctor cut off your arm during surgery. The boy was obviously traumatized above the level he would have just going into surgery. This was recognized as a perfect opportunity for change, and change did happen. It just wasn’t Lean Change.

I have seen many crises among our Alaska Native corporations. It’s the nature of how they were born. Crises have led to some change, but not enough. We currently rely on special treatment from the federal government through it’s minority business programs, a category of shared earnings referred to as 7(i) income and savings accounts that generate significant amounts of earnings. Operational profits are slim for most. My regional corporation went through a significant period of losses in operations fueled by huge losses in one of our subsidiaries. Did this provide an opportunity for change? Yes. Did it provide change? Yes. Was it enough change? Not in my opinion.

When Nelson and Winter talk about the power of “routines,” it resonated with me. When faced with crisis, the first thought is to replace leadership. That happened. The second through was to divest nonperforming businesses. That is happening. The third thought is to buy great performing businesses. That is in process.

I argued for a different type of change, as I have for the past 10 years. Let’s adopt Lean Thinking. I have shared lots of information with our management and board over the past 10 years. Lean organizations blow their non-lean competition away. More cash is generated and expansion is quicker. I talk about lost opportunity cost and explain how it hurts us. If we lose $30 million in cash, that’s cash we don’t have for expansion or shareholder benefits. If we waste $30 million through inefficient operations, that’s cash we could have used for expansion. If we have both, we waste a collective $60 million that could be invested for future returns. If we achieve a 10% rate of return, we effectively waste $6 million in revenue the first year. If nothing changes, then over 10 years, we have wasted $60 million at a minimum.

That’s the routine we are in. How can we break it? Not only here, but also in my state—you know, the one with the fiscal crisis. At the state level, our routines revolve around increasing revenue from the oil industry and cutting budgets. We do both based on relationships and routines. My argument has been to follow the lead of a number of states, the US military and some federal government programs. Let’s adopt Lean Government as our management system.

The crisis in the state of Alaska also provides more than just an opportunity to lead a change to Lean Government. I estimate that an effective Lean Government implementation can produce at least half a billion dollars in value while retaining the effectiveness of existing programs. Now I am not advocating that we cut half a billion dollars worth of employees. That’s not how Lean works. I have written about keeping employees many times. But there are many opportunities available for cutting costs while respecting the employment of our staff.

Effectively implementing Lean Government could impact the private sector in our state in many other ways. By extending the Lean practice to our municipalities, school districts and the University of Alaska, we could save many more resources and still provide the same or increased benefit. And imagine the potential if we could influence our health care systems to implement effective Lean Healthcare. By driving down the cost of healthcare, we could impact every business in Alaska and make them more competitive against the rest of the country. After all, sending patients from Alaska to Seattle has actually been proposed as a response to our fiscal issues.

And finally, imagine if our businesses adopted Lean Thinking. Perhaps we could become more competitive worldwide and actually expand our economy. When I think of how Lego is a huge driver of the Danish economy, I salivate.

Nelson and Winter had a great point when they exposed the routine that exists within organizations. How do we challenge those routines and effect positive change? I am running out of ideas, so I just keep plugging away. Perhaps one day, there will be a leader who steps forward and is not stopped by the political routines that exist in our state.

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