Posted by: knightbird | January 12, 2016

Are our Priorities Misplaced When the Focus is on Cost Savings

I have been fortunate to lead a Lean Management transformation in a non manufacturing environment. And while I was interested in cost savings initially, I cam to learn that saving costs is so easy if you implement Lean the proper way, and focus on what my friend Mark Graban reminded me of in a recent post, Shigeo Shingo’s priorities: “…easier, better, faster, cheaper…” To that, I would add necessary.

As I approached our state of Alaska, currently in the throes of a fiscal crisis caused by a huge decline in oil revenue, I spoke to people about maintaining service levels. I reviewed an RFP for a lean consultant put out by the Alaska Division of Public Assistance and found that despite using consultants, after 6 or so years they had 150,000 clients with a backlog of 10,000 applicants and a computer system implementation that was almost 2 years behind their implementation schedule. Their RFP looked as if they were pinning their hopes on a consultant.

But I take the question of misplaced priorities even further than just funding and budget issues. A major point of Mark’s post had to do with health care executive focus on cost cutting. But when I apply systems thinking to health care, I come up with a different answer than cost cutting. I focus on healing as the goal. Then I look at Root Causes, of which there are many.

My first focus is on the dysfunction of the entity they want to cut costs for. In his book, Chasing the Rabbit, Stephen Spear describes how an experienced Toyota Executive analyzed each new factory he visited. He always asked to visit the loading dock first. According to Dr. Spear, this executive wanted to get as close to the customer was he could. He asked questions about delivery, loading and wait times. Then he worked his way back through the processes that made the product.

I agree with that approach. Our first step is to look at the customer and how services are delivered. Scientifically. Let me explain why. I have sat through countless “constituent” and “stakeholder” meetings. People affected by the services come to a meeting and talk about the problems. The leadership acknowledges the problems, imply that they are not as bad as they seem and that they are doing everything they can to make improvements. They go back and tell employees to do better, implement more reports and return to fighting fires. I just reviewed, for example, an RFP for conversion of a group foster home into a transition home in California. They are moving from indefinite stays to 10 day stays. A significant part of the RFP requires the consultant hired to visit constituent and partners. That’s not a bad request, it just doesn’t usually lead to much other than a restatement of the complaints. The consultant is then supposed to make recommendations on a conversion process.

How would I approach the RFP in a Lean fashion? I would start with the real customer, the foster kids. Where do they come from? How are they referred? What are there needs? What intake process is followed to bring them into the system? How does the organization get to know the customer needs at intake? Are there records that follow the customer and how are they transmitted and assessed? Every question would be identified by a team that includes partners of the organization and copies of all laws, regulations and documents collected as we identify the “Current State” the organization uses for bringing customers into the home. We would build a profile of the customer so we can best learn about their needs.

The rest is plain Lean Kaizen. (Surprise, its been Lean Kaizen for the last 2 paragraphs.) We would calculate Takt Time, calculate Current Stat Cycle Time, identify any pull systems serving the main process and see if there is any current standard work in place. Then we go to work on creating flow. We eliminate waste and enhance Value.

Two of the Priorities this organization has in it’s RFP is strategic. One is mandated by law—conversion from a long term group home to a transitional home. The second is a recognition that children who enter the foster care system are far more likely to come from Trauma burdened families. in the late 1990’s, the Adverse Childhood Experience Study identified experiences that occur during childhood have an impact of both health and behaviors. As that knowledge has spread, organizations are seeking ways to recognize which children have trauma and how it affects their behavior. Because the level of knowledge about ACE’s and the issues of identification, this could be the most difficult part of the RFP and would benefit from Kaikaku. This organization is seeking radical change, and at this point in the improvement process, the participants need to have guidance because they are reaching past traditional boundaries and radically changing what they are doing. Kaikaku is change management on steroids. It’s difficult to achieve because of the barriers that participants throw into the discussion. We can’t do it. It’s impossible. We don’t have the resources. We are not a manufacturing company. I have always done it this way. Radical transformation is always scary to a majority of people. A good leader has to show a pathway to success, which means reorienting negative thought patterns.

Kaikaku can be accomplished in a week. Isn’t that better than waiting 6 months for a consultant to talk to people and come back with a report that still needs to be implemented? After we understand the framework of laws, regulations and relationships, we build the service from the ground up. By addressing the concept of childhood trauma burden, with Kaikaku rules applied, we arrive at a completely redesigned system ready for implementation, and a dialogue already conducted with questions answered. It is likely that initial standard work can be drafted in the Kaikaku week and with a new flow process mapped, implemented with test cases the following week.

Now let me try to bring this back around to the question I asked in the title: are improvement priorities misplaced when they focus on cost savings? Yes, I believe it is. The purpose for introducing Lean Thinking in an organization is to serve our customers. When we are in a service generally provided by government or a non profit, there is a huge bureaucracy built by non business leaders who want to do good. The example I cite about DPA is designed to eliminate a backlog and get existing services to customers quicker. That’s not bad. But their original continuous improvement training has not taken hold and they backslid to a considerable backlog. The transition RFP is designed to accomplish change in a traditional manner, have a consultant do it. Cost is apparently not a consideration because it is not discussed in the RFP. However, because Kaikaku takes just one week to conduct, and a couple of months of oversight to implement, it already saves cost because of the reduced cost of a consultant. And the Kaikaku itself, because it will consider Takt, Flow, Pull Systems, Waste Elimination and Standard Work, will increase Value Capture, which always reduces cost. It’s a simple equation. Increased Value Capture = Reduced Cost.

So the answer is yes. A focus on cost reduction is misplaced. Implementing Lean will lead to cost reduction.

Governor Bill Walker has implemented a hiring and travel freeze in Alaska. Instead of focusing on service improvement, freezes often hurt them. When I spoke to the Governor over a year ago, a little bit of time invested in learning about Lean and developing a strategy would now be reaping benefits, one of which is the gradual elimination of vacant positions and the transfer of other positions to places that need them.


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