Posted by: Knightbird | January 4, 2016

The Impact of State Public Value Capture on the Other Public Sector

I have tried to explain the systemic improvements that might be available to the state of Alaska if the State was to implement Lean Government as its management system. My hypothesis is that, if done right, the state of Alaska could capture 25% greater value, and either use that value to reduce their budget without diminishing services, or increase the services they do provide. With an agency with no budget cut, they could provider greater service. For one with a 25% budget cut, they could provide the same level of service.

But there are a number of other Public Sector Organizations that depend on State funding, in part, and on customer revenue, in part. How would state adoption of Lean Government as a management system impact entities such as local governments, school districts, the University of Alaska and various grant funded organizations? To me, the answer is obvious, but will take time to unfold.

First off, the state could serve as an example if it implements Lean Government correctly.

If the state experienced, as I hypothesize, a 25% Value Capture, it would have the experience to demand similar results from the entities it funds. School Districts might have a tougher time capturing value at the same rate because of the already high ratios of students to teachers, but the literature acknowledges a significant benefit that can accrue through application of lean thinking to education.  I wouldn’t give up on achieving that rate of Value Capture through. Instead, I would look at an increase in Value Capture with some decrease in spending, predominantly on the administrative side of education. At the University of Alaska, because they have the ability to capture more revenue, I would examine how an improvement in the delivery of higher education services might achieve greater value through Value Adding.

Local governments have the potential for substantial benefit at the same level as the state does. A municipality like Anchorage, with about a $500 million budget, could see a $125 million reduction in the cost of services it provides. At this point, everyone becomes skeptical or outright dismissive. Yet the facts demonstrate an ability to substantially reduce the cost of providing any service. It’s not unusual to see a 5 fold increase in productivity once major amounts of waste are removed from a process. What most managers fail to see is what happens when you apply Lean Thinking to every part of the organization. Sir David Brailsford concept of “The Aggregation of Marginal Gains” makes it plain that every improvement opportunity, no matter how small, is important.

I learned this concept when reading about Dell Computers, and the efforts they would go though to remove one fastener from a computer if it did not compromise its structural integrity. One faster might eliminate 5 to 10 seconds from assembly time. If one million computers are assembled in a time period, the savings that accrue add up to 1,389 to 2,7778 hours saved. Marginal gains on one unit add up over time.

Safety is a key part of Lean’s Respect for People, and most managers do not know how to value the savings that accrue from safety when combined with Lean. The savings accrue from everywhere. The employee doesn’t lose work time and interpret the flow of work while tending to the injury. Management and HR time isn’t used to respond to the injury. Workers Compensation paperwork doesn’t have to be completed and responded to. Records don’t have to be maintained. Premiums go down. And the employee does not lose income or suffer pain or disability. Paul O’Neill’s experience at Alcoa Aluminum also demonstrated how a passion for safety can help transform the culture of an organization towards Lean Thinking.

And doing the job right the first time has benefit not just for the organization, but for the customer. Developing Lean Standard Work and flowing work both contribute to an increase in quality. But when your employees are free from restriction and are allowed to “Swarm” defects and problems with the purpose of solving them, quality not only goes up, it gets better and there is no backsliding. The benefit to customers include time savings; movement and transportation; avoiding rework; and stress.

And the reduction of expenses at a local government can give the businesses that rely on services provided to reduce their services and provide a competitive advantage. The advantage can be difficult to quantify because the benefit is spread over a multitude of businesses, but the reduction in tax burden, increase in efficiency of service provided and the decrease in utility expenses and outages can help businesses survive more effectively.

And think about this. If municipal social and justice services can figure out how to do their job right the first time, they will contribute to savings by not having to repeat that service. Stopping a DWI or crime through effective social service leader to savings. Making a foster care placement quickly can save substantial sums over keeping a child in an institution, and start the path to healing.

And truly strategic lean thinking is reflected in what is referred to as the “Housing First” initiative that achieves substantial savings because of services that don’t have to be provided to the homeless. In Seattle, one study pegged the savings at $2,500 per month for a homeless person over one who is given free housing. Seattle calculated a savings of $4 million in the first year of its program operation.

And by doing the job right in Washington State, $26 million a year was saved annually through funding intervention efforts designed to respond to what are referred to as Adverse Childhood Experiences. And in Alaska, the economic cost of Adverse Childhood Experiences has been quantified at $82 million annually a figure I believe is actually conservative.

Value Capture by improving the organization through Lean Thinking, and by responding quickly to problems and issues and correcting them the first time through areas like social services, safety and health, can pay huge benefits for any organization. Value Capture then allows for Value Adding and leads to a cycle of reducing costs and increasing returns to customers.

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