Posted by: Knightbird | January 1, 2016

Value Capture When Public Revenue is Declining

A multitude of organizations in Alaska are examining the states fiscal issues and putting recommendations forward on how to deal with declining revenue. They advocate for various strategies that include cutting the state budget, raising existing taxes, creating new taxes, and using the Reserve Fund to provide a gentle landing for the state economy. Some are advocating for diversifying the economy. And recently, the Obamacare medicaid expansion was a political issue because of it’s possible impact on the state budget, both positive and negative. In this post, I want to talk about Value Capture from the existing state budget.

In an earlier post, I didn’t really define “Value Capture” as much as I explained it using examples. But Value Capture is the simple act of doing more value providing work with existing or diminished resources. I didn’t use public service examples in the earlier post, but they are easier to come up with.

The Red River Army Depot in Texas achieved a 3,400% increase in output, using the same resources, by application of Lean Management principles. In a 10 hour shift, they managed .5 vehicles rehabilitated. They increased that to 32 vehicles rehabilitated in a 10 hour shift. You might come back and say, but that isn’t government service. And I would bet to differ. In our state government, we have a lot of different types of vehicles-automobiles, buses, airplanes, boats, ferries and lots of others. But point taken. We often think of government services as more paperwork. Let’s try the one on for size. Local government regulations are administered using a permitting process. You submit an application to build to a government agency and you wait. And wait. And wait some more. Waiting has a cost, and it’s recognized as one of the 8 types of waste in Lean Thinking. Here is an improvement report from the National Association of Home Builders.

Kittitas County, Wash. overhauled their permitting approval process in 2015 by taking part in the State of Washington Audit Office’s Lean Academy. Kittitas’s Community Development Services Department (the county permitting department), underwent 8 days of training in the academy in which the entire permitting process was mapped and then optimally redesigned. As a result, the permit application package for single-family residential building permits was reduced from 26 to 17 pages, and permit processing time went from seven weeks to four weeks or less.

Although benefits aren’t discussed, some of them are obvious. A 17 page application takes less time to prepare and less time to review. And a 3 week reduction in the approval time lets a builder start building 3 weeks earlier. In other examples, fewer employees are needed to achieve the same volume of work, and that’s Value Capture.

Value Capture’s primary benefit is that you can do an equal or greater volume of work with the same or fewer resources. At Red River, because their productivity increased so dramatically, they were able to do a greater volume of work with the same resources. They don’t reduce their own budget, but they put a lot more vehicles back into service quicker, which provides Value Capture for their customers. But because they are a government service, their revenue doesn’t increase. They are funded by appropriations contained in a budget. The beauty of Value Capture is that if their budget is reduced, their original output will still be exceeded. A budget cut of 50% means that their output becomes 16 vehicles per day instead of 32—still an amazing improvement.

What does this mean for Alaska, if adoption of Lean Government thinking can be done right?  As the Executive Director of a non-profit organization doing mainly government type work, we achieved a rate of Value Capture of about 26%. This rate of Value Capture is about midway among the possibilities. And it would only have increased as we improved our lean management skills.

Done correctly, converting state of Alaska management to a lean system could produce a 25% or greater Value Capture. That means we could do the same (or even greater) quantify of work with fewer resources. If your division has 500 employees, we could do the same volume of work with 400 employees. (I have dealt with how to address employee issues in a past post, but you don’t go into lean telling employees to work themselves out of a job.

A strategic concept that few seem to grasp is that through your improvement, you are able to help your customer achieve Value Capture. The builder who uses fewer resources to prepare an application and is able to start work 3 weeks earlier can capture additional value as well.

Value Capture is available to all of us. We can’t always increase our revenue even when we do a great job, and the public sector is a prime example. There is always heavy pressure to reduce budgets and get more work out of your public work force. This is a way to do it while increase both Value Capture and Add for public service customers.

Posted by: Knightbird | December 30, 2015

Value Capture Through Lean Thinking

Making a move from operational lean thinking to strategic lean thinking is understanding the concept of “Value Capture” within existing revenue and expenditures, and it’s impact on “Value Adding” during business development. This shift in thinking alters the way you can look at the future. Let me explain.

A story on the web tells about the impact the lack of a $25 grease gun can have on a manufacturing operation. [Link here.] During Sunday night startup, every machine was greased for the week. Because there was only one grease gun available, the process took a total of 22 hours (That works out to a total of 1,144 hours annually). During that time, employees sat idle, machines were not producing and production was not being achieved. This is considered waste, and lots of it. The estimated loss by the author of the article was $1 million (annually?) The loss equates to about $695 per hour, which is a reasonable estimate of loss.

Value Capture is the act of recovering the lost $1 million. The solution was a simple one. Buy 12 more grease guns at $25 each so each machine could be greased at the same time. This simple act gives you 22 hours a week of production and costs you nothing more than the $300 initial investment. That’s annually. Every year you capture this $1 million.

I have many more examples of Value Capture from my own experience. Once you learn what Value Capture is, you can apply it everywhere in your organization. In our health clinics, we usually had 3 exam rooms occupied at one time, yet we only had one piece of equipment that was used regularly. Health practitioners often had to wait for the equipment until another practitioner was done with it. If the wait time is 30 minutes a day per practitioner, we have 375 hours of nonproductive time annually. In addition to the inconvenience caused to our patient customers, the real cost to the organization is more like $12,500 annually. One example from our finance office recognized a report prepared weekly at a cost of 2 hours. The report produced nothing of value, but cost 104 hours annually at a cost of $3,500. Before we put in a spam filter, we estimated each employee received 50 items of spam daily, and that it took 1,750 hours of time annually to delete it at a cost of $57,000. (I am using an hourly cost of $32.50, a blended rate that doesn’t give a true cost, but estimates accurately enough to make the point).

Within 5 years, we had achieved a value capture of about 25% across the company. This meant we were able to do the same amount of work we did in year one with about $2.5 million less in year 5. Quality improved. Output improved. And satisfaction improved as well.

So what does Value Capture mean for Value Adding?

It means that you can stomp the heck out of your competition that doesn’t use Lean. As a board member for a profit making corporation, I see our executive team chasing greater revenue. They spend a lot on buying employees who are familiar with pricing bids. Their goal is to pursue more wins, and staff are rewarded for more wins. If they focus on Value Capture, and if they understand their competition’s pricing, the team will have an additional value of 26% available for making bid pricing decisions. In many government contracts, the bid team might try for a gross margin of 10% before Value Capture. After Value Capture, they have a gross margin potential of 36% available, and if the competition is tight, they can actually give up margin to get the bid. That’s the definition of Value Adding. It builds upon Value Capture that is used for business development.

OK. You might argue that you write your bids as tight as they can be written. You argue that you can’t capture any additional margin because you are already cutting expenses to the bone. With Value Capture, you can do the work at a cost 25% less than you did before. If you apply Lean Thinking to every aspect of your business, labor, cost of goods sold, G&A, procurement, finance and accounting, you can achieve at least 25% Value Capture with the application of Lean Thinking. $100 million of revenue with $10 million gross margin, $15 million G&S, and $75 million COGS becomes $32.5 million gross margin, $11,250,000 G&A and $56,250,000 COGS. Your cost of $90 million with $100 million is reduced by 25% to $67.5 million.

So Value Capture leads to a greater ability to create value that you can use to Value Add in new revenue. If you use your lower cost to double your revenue, you are looking at $200 million in revenue with $65 million in gross margin and $135 million in cost. You now have the earnings to pay for the additional cost you accrue to earn that additional revenue, without borrowing.

Now you only need to get past your doubts about the value of Lean Thinking. You don’t believe it can work. My assurances aren’t going to convince you, only your personal experience will do that. And guess what. It won’t cost you a dime in the first year to try Lean Thinking. Yes, you might have some upfront cost. But if you know how, you can recapture that as you conduct your first few Kaizen. You won’t be letting people go because you will need them as your business acquisition efforts become more successful.

However, you will need strategic guidance as you move forward with a Lean Thinking implementation. You WILL encounter considerable resistance. We all think we are doing a great job. The Dunning Kruger effect tells us that we believe we are among the top performers in our organization. When you show one of your “top performers” how to do better using a Lean Systems approach, they will resist. Many employees gain great personal value from a traditional command and control management system because they have the social skills and special knowledge about workarounds that gain them accolades. They are unwilling to let that go and put up resistance.

You also need strategic guidance in determining what your most important value streams are, and how to approach them for improvement. In most processes, there are many pull systems that contribute to initiate inefficiency. Here is a personal example from a patient process I analyzed.

5 Medical Providers were able to see an average of 11 patients daily. They were unable to put in a full 8 hours seeing patients, and had to use a 30 minute appointment instead of a 20 minute appointment because of a poor Electronic Health Record and no support. Each provider did their own paperwork and phone calls. With help, the existing providers could achieve an increase in patients seen of 25 daily, or 16 each. That works out to an additional 6,250 patients annually (for a total of 20,000 patients annually in 250 work days). That’s an approximate increase of 45%. The 45% increase in revenue pays for the additional help that takes away the paperwork and telephone call burden from the Provider. Now one of the “Pull” systems used during the appointment is the Electronic Health Record (EHR). Providers said that they could not move to 20 minute appointments because it took them approximately 20 minutes per appointment to negotiate the EHR. This system would take a significant amount of time to improve. Initial investigation showed that the existing EHR wasn’t upgraded and was behind by approximately 15 upgrades. It also showed that there were a lot of incompatibly components to the system. But let’s assume that we eventually reduce the effort required by the EHR to 10 minutes. Then we can reduce appointment times to 20 minutes, or 24 appointments daily. 5 Provides can now see 30,000 patients annually, for an approximate increase of 16,250 patients over the initial visits of 13,750, or an increase of 118%. The Value Capture portion is substantial. If your annual patient visits remain at 13,750, you can achieve that with less than 2.5 Providers. The additional investment in Medical Assistance and EHR improvement will be significantly less than the cost of 2.5 providers. The Value Adding part is the additional 16,250 patient visits.

Seeing the strategic whole is critical to capturing the initial gains and continuing them to the point of a strong competitive advantage against your competitors. You should try to capture this advantage before they do.

To recap, Value Capture through Lean Thinking leads to an ability to Value Add and capture new revenue sources. By improving your existing operations, you give yourself an advantage with every improvement in Value Capture. You do the same amount of work for less than before, and you can use that ability to do work for less to achieve Value Adding though increasing revenue. The Value Capture means your Value Adding is worth more to you. It gives you greater cash flow, more capacity and allows you to fund your expansion with internal funds. But this is only available for as long as your competitors aren’t using Lean Thinking.

Posted by: Knightbird | September 23, 2015

State of Alaska RFP

I have done some more thinking about an approach that would produce significant Lean benefit without having to issue an RFP. I shared this thought with a young man I had a discussion today about Strategic Lean Thinking.

Early in my executive career, I made a mistake and authorized purchase of a software solution to our payroll process. It was implemented without Kaizen and standardization of our processes. In  much later payroll Kaizen, my team asked me to suspend use of the software. It turns out that the minimum cost was 2.5 days of waste per week (18.75 hours a week or 975 hours annually). Our payroll clerk had to come in very early to communicate with the software consultants and stay late to complete the work within our process to ensure payroll was made on Friday. I was unaware of the added stress our software purchase cost our employees and our finances. 975 hours at an all inclusive rate of employment at $50 an hour is $48,750 annually. We paid slightly more than $40,000 for the software and invested a lot of time installing, maintaining and training for it. The expense was considerable, but we did not sufficiently keep track of the cost our software contributed to company waste. It was substantial. The same is true of our inability to assess the waste associated with the ongoing use of our payroll software. We did not construct a current state that included other waste from other parts of our organization.

I made a mistake early in my career looking for a software solution before we has assessed our existing system, stabilized it, and created a future state that might have included software at a time when it would have added value. Software, in my experience, should only be added to a process when the process is stable, has eliminated a lot of waste, and can take over repetitive processes that don’t require judgement. People can generally perform as good or better in a Lean improved process than in a non lean automated process. I admitted the mistake because that is what Lean Practitioners do. And I learned from it, because that is what Lean is all about.

Applying this lesson to the RFP was a wonderful teaching opportunity with this young man.

The RFP reference a process manual and a backlog of 10,000 applications. It asks for what appears to be Kaikaku (rapid improvement instituted by a Sensei) and not Kaikaku. The pressure seems to be a less than successful software implementation. Although I hope I am proved wrong, I did not see a pathway to success as a lean project in the RFP. What I saw was a desire to recover from a software implementation that was not properly timed. The potential cost is $800,000.

Without knowing any more details that shared in the RFP, I would propose an alternate solution. It should cost far less than the $800,000. This proposal would use existing resources with a smaller improvement window. The client needs to hold a Kaizen to look at the application process(es). In a well planned week, you can actually look at a number of processes through a team of about 10 to 12 people. The education portion of a Kaizen is attended collectively with breakouts of 6 people into 2 mapping sessions. By the end of the week, at least 7 proposed improvements have already been started. What would I need to know in order to see improvement? Here’s the progression. What is the Takt Time. That is, how many applications are received in an average week and what is the distribution of receipt. Once we have a current state map in place, we will have an idea of what cycle time is. We will have identified the waste existing in the system (as they say, at least good enough for government work), what the average cycle time is, and begin looking at how we can eliminate that waste and reduce the cycle time. Batching is probably one of the wastes. There will be many others. As we work on the Future State, we will propose at least 7 strategies for improvement, and by the end of the say Friday will have starting working on one or more of them. At the end of the process, we will know a target reduction for cycle time. We used a completely speculative example to discuss this. I suggested that cycle time was 20 minutes, and we could reduce it to 10 minutes. I also used 480 as the Takt Time. That’s because there are 480 minutes in an 8 hour work day. This meant we needed to clear 480 applications a day to avoid a backlog. A 20 minute cycle time meant an ability to clear 24 applications a day per employee, which would require 20 employees to accomplish. If we reduced the cycle time to 10 minutes, we would need only 10 employees to achieve the same result. In my experience, that is very much achievable.

With 10 employees freed up on a daily basis, we could then use a few of them to improve other parts of the process. And for training. At this point, we are accumulating savings. I used an $80,000 annual cost (rounded to $40 per hour for ease of calculations. Every day (8 hour days) produces $3,200 in savings ($800,000 annually). That’s the cost of the contract, but we will achieve some much more than the RFT anticipates. What’s the upfront investment? Hiring a Sensei for the department. The cost is likely to be about $150,000 plus expenses. The savings accrue rapidly once the backlog has been eliminated. 10,000 backlogged applications, spread out among 10 employees with a cycle time of 10 minutes, will take about 21 days, or 4 weeks of work.

The cost of eliminating the backlog doesn’t seem to be calculated into the RFT, except through any improvements made. If we calculate one week for the Kaizen, 2 weeks for the improvements to be implemented and tested, and 4 weeks for absorbing the backlog, we will have a stable system in about 2 months and be ready to tackle the software integration.

I know it’s a bit more complex than this simple scenario, but the approach is sound. It’s one I have seen followed hundreds of times with success.

Food for thought.

Posted by: Knightbird | September 20, 2015

Improving A Government Benefit Assistance Process Through Lean

Administrative processes are difficult to see. If you go to the Gemba in an administrative process, the elements of a successful system are generally hidden. But we can generalize that all administrative processes have similarities, as follows:

INTAKE: When you fill out an application, it has to be accepted into the system at some point. We generally have 2 pathways to deal with at this early stage. Is the application COMPLETE or INCOMPLETE? A COMPLETE application is ready to move to the next step. An INCOMPLETE application has to loop back for completion. This is classified as a DEFECT and the reason for it examined and removed. LOOPING BACK costs time and can be quantified.

ELIGIBILITY DETERMINATION: Based on the information presented, the application has to be acted on. The pathway is either YES or NO. If the determination is objective, then the answers to questions in the application determine eligibility and this step is one that could be automated. If some of the information is requires a subjective determination, then people need to make that determination. Whether OBJECTIVE or SUBJECTIVE, a YES answer moves the application forward and a NO stops the process, with a NOTIFICATION of denial sent to the applicant, along with all required notifications about appeal rights.

BENEFIT DETERMINATION: YES then leads to a determination of the level and frequency of benefits. This step is dependent on the information provided. When it is calculated, the next step is NOTIFICATION of benefits and inputting the information into the periodical delivery of benefits procedure.

Improving an administrative process can take place once you know what the steps are, the sequence they are performed, the number of opportunities you have in a period of time (work day) and the current cycle time.

In the terms I use, which are adopted from Art Byrnes description of the improvement process, we determine Takt Time (number of opportunities in a period of time) then move to examine flow. Our goal is to make flow as continuous as we can by eliminating various wastes (8 Wastes). We strive to eliminate any batching in the system. We also operate a FIFI (First In, First Out) system. If we have different types of applications with different processing requirements, we may interject a “Heijunka Wheel” to allocate the workload among all workers in the process. This also helps us allocate work complexities to those workers who are trained to process them.

Any Pull Systems called upon during Process Flow are also examined to ensure they are available when the application calls for it.

When we arrive at a good plan for a FUTURE STATE, we work towards implementation record STANDARD WORK. WORKERS write out STANDARD WORK, and every new WORKER is taught the STANDARD WORK before stepping into the process. In the improvement process, we always substantially reduce the CYCLE TIME and end up completing each administrative process with considerable time savings. If we process 10,000 applications with a CYCLE TIME of 60 minutes in a CURRENT STATE, and reduce CYCLE TIME to 40 minutes in the FUTURE STATE, we save approximately 1.6 FTE’s on an annual basis.

Using data, 10,000 applications annually, if distributed equally by days, is 40 applications a day in an organization that has 250 work day. I always perform this type of calculation to visualize how busy the system is. TAKT TIME for 40 applications in a day, with 480 minutes available for work, requires clearing 1 application every 12 minutes. If CYCLE TIME is 60 minutes, we need 5 WORKERS to clear 40 applications and not start the next day with a backlog. When we reduce CYCLE TIME to 40 minutes, we need 3 1/3rd  WORKERS to clear the applications. We calculate a 33% improvement in our capacity. In a Lean Kaizen, this level of improvement is achievable without great effort.

The State of Washington DSHS applied Lean Improvement methods to its SNAP (Supplemental Nutrition Assistance Program) with amazing results. It freed up the equivalent of 400 FTE’s out of a total workforce of 17,000 (a 2.4% reduction of effort). If we assume a total employee cost of $80,000 annually (Salary, Benefits, Cost of Space, Tools and Supplies), the savings accrued add up to $32 million annually.

And SNAP is just one program of many. At this point, I mention the concept of “Aggregation” to demonstrate the cumulative impact of applying Lean Methods to multiple Programs. If we can achieve similar results from 10 programs in one department, we have $320 million in savings. Imagine the impact on a state budget with that level of improvement. And what’s even more impressive is the level of quality that Lean brings to a process. When you eliminate defects, you have fewer complaints and loops. There is little need to oversight because you have built into the workplace. And families suffer less because they receive what they need quickly and efficiently.

This is why I am so driven in trying to bring Lean to Alaska State Government.

Posted by: Knightbird | September 19, 2015

Alaska’s Fiscal Future Without Lean Government

In the past couple of months, I have attended a number of conversations about Alaska’s fiscal future. And I have read a few proposals put out by various organizations. Today I attended a Forum, but left early. For 35 years, I have been hearing about government reform. And I hear and read a lot of comments like: we spend too much, we tax too much, we have freeloaders who need to pay their fair share and we need to cut our budgets. I hear very little thoughtful analysis.

Today I heard some decent analysis, but it was far too political for me. We have serious problems we need to address. In a serious way. One comment made at the forum was to put a tax of sugar drinks because they lead to a heavy cost burden on our health care system. I know the comment is well meaning, but it’s ignorant. And the comment came from a highly educated and very competent statewide leader with decades of experience. I also heard praise for the Native community and how well we do things. Yet Alaska Native suicide rates are the highest in the state, our men institute almost 40% of our prison population, we are a significant portion of the homeless in our large urban areas with high rates of alcoholism and other behavioral problems. Our health is terrible, according to our healthcare leadership, and we need huge increases in funding for behavioral health programs and rehabilitation centers.

What do I mean by serious discussion? That’s easy. It’s one that is based on data and not on representations that cannot be proven. Lean Management uses data, and improvements are based on science, observation and continuous improvement. I envision the same process for addressing our fiscal crisis.

Among the topics brought up today was a reduction in education support. Alaska spends well over a billion dollars on education. We have an incredibly high dropout rate, and lots of behavioral issues that need to be addressed in schools. Every dropout adds costs to society for a variety of reasons ( When we don’t consider the costs to society of our actions, we effectively distribute the losses in a way that harms society. When we don’t invest in education, we end up investing in criminal justice. In Lean Terms, I refer to this type of result as feedback loops. Less education, less income. Less income, less contribution to society. Higher service costs. High school dropouts, for example, have more health problems.

When I attend a public forum, I try to spread the gospel of Lean Thinking. What’s interesting is that I might get a glimmer of interest from some, but not often. A politician will usually listen, but try to find a way to exit the conversation quickly. Regular people find the first excuse to exit. One in dozens will actually want to hear more.

The promise of Lean Government is not that it will save us money. The promise of Lean Government is that it will preserve enough of our programmatic reductions to forestall some of the lost opportunities we would otherwise experience. If we have to cut half a billion in expense, but we can preserve the level and quality of service, we don’t end up with some of the feedback loop costs. I want to explore some of these costs in future posts.

Posted by: Knightbird | September 10, 2015

System Connectivity

WIth buy in from the healthcare staff, for the most part, the next steps are education and action. While leading the Lean effort at this organization, I did have substantial duties to fulfill. The board of this organization was very hands on (i.e. micromanaging). In 4 months, we had to prepare for five different meetings of up to 5 days in duration. Mind you, I have been engaged with boards both as a member and trainer. I am a nationally recognized Parliamentarian with glowing compliments from many leaders. I was on my way to the airport to make a scheduled flight and left a meeting that was still in progress. As I left the meeting parking lot, I started receiving texts and phone calls asking me to return. A crisis had struck. I returned, and the crisis was over based on my advice. The meeting adjourned quickly but I had to reschedule my flight. I have been told that my presence at a meeting introduces calmness and rational debate. While at the meetings, some of them 5 days in length, I literally spend almost no time addressing Parliamentary issues. And if they do come up, I generally have a solution within minutes.

WIth over 30 years of experience with boards, I am able to make assessments very quickly. And with this organization, I knew I was dealing with a very inexperienced board interested mostly in protecting employment opportunities for local tribal members. I tried to work with preserving and increasing employment while at the same time dealing with a potential loss for the previous year of in excess of $9 million and a $5 million budget deficit. It was easy to deal with the deficit. It was erased in less than 4 months. It was more difficult to deal with the board and its many meetings.

Every aspect of any business is part of an interconnected system. If you make a decision at the board level, it slowly permeates the organization. With the board choosing to make little or no work positions available to tribal members, there was a substantial impact on revenue and ability to provide services. When I teach Lean Thinking, I talk about control charts and Dr. W. Edward Deming’s discussion of common cause and special cause. Even a relatively unmanaged process in any business can be described as a stable system. And by stable, I don’t mean a good system. What is means is that any measurements you take will fall with a range around a 3 sigma upper and lower control limit. If a data point falls within this six sigma range, it is an expected result, even if it is defective. I often call it a stable chaotic system. This organization was a stable chaotic system with innumerable defects. A huge part of the reason was the culture supported by the board. For example, the vehicle use I wrote about earlier was well known to the board, but had not been addressed because of the system of fear the board used to control its executives. Because I was an experienced executive, I had far greater knowledge than our board about management. But they would not let go of their control. So while they were fighting over employment, during my tenure I only let 2 employees go. One was because I did not need the position. The second was because of theft that occurred by an employee. Still, the board chair wanted to know if the second dismissed employee could be “rehabilitated.” I took that to mean keeping their job. The organization’s attorney told me in one of our many conversations that the board over decades often choose to overlook theft by managers. As I said yesterday, whenever allegations of theft or fraud are brought to the attention of a CEO, they have an obligation to investigate. I had allegations that seemed credible, so I did investigate. That story will be left for another day.

When I arrived at the organization, employees would show up late for work, take long breaks and leave early. I even heard allegations that the C Suite would play cards during the day around the CEO’s conference table. And many trips had allegedly been taken for the benefit of an employee (to participate in sporting events, go shopping or visit casinos). I made it very clear on my first official day that being on time was mandatory. Because I was at my office before hours and for at least 2 hours after, employees complied. This was not as much a problem at the healthcare facility. Facebook usage was rampant. At one time I was told that Facebook use constituted over 70% of internet usage at the organization. And as I said, many jobs in the organization were basically there to distribute income to tribal members and did not have a full day of activity. One position had been created for a board member who already had a full time job. The board inspired culture was going to be difficult to overcome, but I did my best to address their concerns. For example, while they focused on individual employees who were let go, I hired and promoted many, many tribal members. One huge success was filling 20 long time vacant Community Health Aide (CHA) positions. And we had an additional 6 experience CHA’s interested in returning.

For a system, it is destructive to have a class of employees who enjoy special privilege, such as access to a vehicle for personal use during and after hours, showing up for work whenever they choose to and using organization assets for personal gain. And having a job where they literally did no work but received full time compensation. I am pleased to say that I made very good progress on changing this culture while I was there. Many local members of the community would stop me, or even come in to visit, and compliment me on the changes that occurred in such a short period of time.

Changing a system involves numerous cultural changes that have to be understood and accepted by a board of directors. Because this organization had no long term strategic vision, and a culture of fear tolerated by the board, changing the culture was imperative. In 4 months, the changes that did occur were a testament to many fine executives. That they did not sustain after I left was testament to the board and a small group of arrogant executives.

Systems thinking requires a deep understanding of the existing culture, and a vision for changing it. We did it. As we explained to our board at its annual retreat, we absolutely believed we had a potential for adding over 100 new jobs to the organization using existing funding and increased revenue from improved services. But we did not have enough trained people in the community to fill the jobs, so we were actively working with local education and training organizations on a plan to fill the jobs locally.

Posted by: Knightbird | September 9, 2015

Lean in Healthcare

Yesterday I said I would talk about how the healthcare system came on board with the idea of Lean Thinking. When I asked a healthcare executive for an opportunity to talk to the healthcare leadership, I was told that it probably would not be a good idea. 2 healthcare providers had been involuntarily terminated within the 6 months before I was hired. Increased productivity was demanded of staff, but no additional resources offered. As I told many around me, I would have loved to have either provider return and work for me.

One lesson that my Sensei taught me, and stuck immediately, was the concept of “Going to the Gemba.” Visit the workplace where the work happens, and spend time there. I have referred in the past to “The Ohno Circle,” a place where Taiichi Ohno would place a manager to observe a workplace, sometimes for an entire shift. Ohno had seen something he hoped the manager could identify, and if he could not, the manager would be told to look some more. Sensei Yoshiki Iwata would do a similar exercise, but would ask a multitude of questions that his managers were asked to answer. Going to the Gemba is necessary to learn how to see what is possible.

My visits to the Gemba were instructive. A visit to the emergency room let me see that there were very few emergencies there. Instead, patients who couldn’t get appointments were using the emergency room as a clinic. The exam area waiting room had a lot of people waiting, and further inquiry told me the length of appointments and the hours of patient care. Visiting late at night, I could see that our medical providers were working long hours, and regular patient hours could be followed by emergency room duty as well. The Providers had very little support, and Providers had to handle their own communication responsibilities. We had only one Medical Assistant for 5 Providers in the clinic on a daily basis. The clinic averaged 55 patients a day, or about 11 patients per provider. Appointments were 30 minutes in length and about 14 slots were allocated daily. Discussions with Providers revealed that negotiating the Electronic Health Record would take about 20 minutes of an appointment. And getting technical help with the EHR was difficult. I had a chance to listen in on a conversation about the EHR between a techie and a provider. I watched on a screen a problem the techie denied was possible.

There were many more problems. But with my experience, I knew that a possible future state would allow each provider to see 26 patients per day (or 130 patients daily). With 250 open days annually, this adds p to 18,750 additional patients annually. In the U.S., patients average 3.2 visits annually. The data I had for the 8,000 patients in our service area indicated 4.2 patient visits on average. 55 daily visits meant seeing 13,750 patients annually, or just enough visits to see about 3,300 patients. The total service population that could be served if Providers saw 26 patients per day was almost 7,400. I felt this was achievable, and could generate substantial additional revenue.

But this goal could not be achieved without considerable improvements, which I felt Lean could provide. We could not increase flow without improving EHR performance. The budget for all IT in this organization was about $5.3 million annually, far more than I believed was required. My first 3 months demonstrated that IT was overfunded and could be reduced substantially with a higher level of service through application of Lean. Unfortunately, I would meet heavy resistance from the IT executive.

It was also difficult to hire local medical assistants, LPN’s or nurses. The trained population did not exist, and I knew that working with the local training center was a requirement to develop the expertise we needed. Every provider would need a medical assistant before we could increase patient flow. And it would take about a year to train an MA using a combination of classroom, online and on the job training. But the investment is certainly worth it given the potential for an increase in patients of 18,750. The added revenue would more than cover the additional expense.

Medical records was another tremendous area of need, one that was also affected by the lack of an effective EHR. The EHR used by the organization was essentially free, but because of a lack of training to keep the EHR up to date, we experienced massive problems. One of the solutions I thought feasible was to outsource a server to a DOD/HIPPAA compliant server provider with the expertise to keep both operating software and EHR software up to date. Local effort could then be focused on a Helpdesk and training. Training has been proven to reduce Helpdesk need and is a mean to achieving substantial improvements once standard work has been identified and training is based on standard work.

Records management, including billing and coding, are Pull Systems, and if they are inefficient, reduce revenue potential. The systems were so inefficient that Billing and coding had been partially outsourced, and the system was full or defects, rework and multiple feedback loops. But if you think about Takt time (regular patient visits and emergency room visits), the daily requirement for processing bills is dependent on cycle time. My assessment is that we were overstaffed and again, our strategy had to start with making our EHR more efficient to use.

In my next post, I will continue to talk about the challenges for fixing this healthcare system without significant pull system improvements. I will also talk more about how better flow could be achieved.

Bear in mind that employees had to buy into the potential for improvement. Without their willingness to participate, the system would continue to operate ineffectively. Fortunately, there was great buy-in with the Medical Staff. Unfortunately, IT was not buying in. That lack of buy-in would prove to be the greatest hurdle to overcome because its inefficiency was the root cause of many of the defects among pull systems.

Posted by: Knightbird | September 9, 2015

Where do you Start with Lean?

I had the opportunity to start a lean initiative at a new company a couple of years ago, and although I am no longer there, I learned many lessons—especially in the area of how to start an initiative when you already have an experienced Sensei. It was also a company in crisis, having lost a substantial sum the previous year, and starting the year I arrived with a significant deficit. As with any organization, there were lots of employees who wanted to go a good job. And there were the usual resisters. I faced considerable opposition from the start from the resisters, and for reasons I could understand. They were overfunded and overstaffed for their productivity. I plan to write about my experience with this company over the next couple of months and share them with you.

Facing a significant deficit for the newly adopted budget, I asked the board to approve it as presented by prior management because I did not know the organization, or where cuts could be made without compromising services. I had been advised of a couple of areas where we could achieve modest savings and tackled those areas first. There were a lot of anecdotal reports that company vehicles were being used by individual employees for personal use. I asked that each vehicle have a Mileage Log placed in it, and that every employee who used a vehicle logged data about their use, including name, date, mileage in, mileage out and purpose. Within days, personal use of vehicles declined substantially. Within weeks, our gas consumption had declined by about a third, saving us some of our budget. Projected over an entire year, the decrease in vehicle use and fuel would save us a significant amount.

This was an easy place to start. Vehicles were identifiable by a logo on the outside, and members of the community had alerted me to the non-business use of vehicles when I started. From this start, you can identify the potential for lots of other savings. If vehicles are being used for personal use, you probably have too many vehicles and can reduce their numbers. That seemed to be the case here. As we dug in deeper, we also discovered a poor inventory system that did not balance. And maintenance of the number of vehicles used by the company led to a large vehicle maintenance staff, inventory and space used somewhat infrequently. Early on, we thought about advocating with the board to outsource maintenance to private businesses in the community. We didn’t have an opportunity to analyze the possibilities, but the potential was visible.

Downstream savings that most businesses don’t calculate when taking a small action like this include: (1) less fuel, oil and tire use; (2) less maintenance required; (3) fewer vehicles to purchase and support; (3) less storage space and electricity to use on engine block heaters; (4) recapture employee time used for personal errands; (5) reduced maintenance staff, inventory and space; (6) reduced accounting and staff support time for the purchases required to support the vehicles. Over the course of 5 years, it’s not inconceivable that savings could result in the millions of dollars. And that’s before application of Lean Management methods.

But one of the benefits of putting the use logs in vehicles had potential for huge savings, and that is the change in culture. It was a culture in which many employees had low expectations for production and they achieved them. Jobs were being created for the purpose of employment—not to provide value for the company’s customers. This simple act started the cultural change required to make this company achieve what it needed to for it’s customers. I had to let employees know that personal use of company assets was not acceptable. For those who live in Alaska, we hear about Tribal organization executives who have been convicted for using company assets for personal gain. One use is frequently company credit card use for personal gain. One conviction was for recording time not worked on time cards. In one case I personally worked on (as an executive, not an attorney), the tribal executive used a tribal check and account for putting a retainer down for a personal criminal charge. Because the Sarbanes-Oxley Act change accounting requirements for Profit Making Companies, to the point of authorizing criminal penalties for violations, those of use running non-profit companies were advised to consider the potential for similar charges against us if we violated provisions of Sarbanes-Oxley. I took this charge seriously. And, of course, stopping personal use of company vehicles was the first step for informing employees that our new cultural standards for using the company’s assets was starting.

You will hear this from me frequently—a culture cannot change without the leadership leading, and the standards for change made clearly. It takes time and and repetition. And it takes a clearly stated vision. Tomorrow, I will talk about how I stated my vision to the head of the Medical care service division and the problems they faced in providing the services they wanted to. And I want to make it clear that they would ultimately buy in to the vision. However, they had been victimized by prior management and took some time to warm up to Lean Thinking. Again, they have to be convinced that Leadership will lead appropriately, and not sell them out.

Posted by: Knightbird | August 28, 2015

Embarrassing, But Consultants Should Know More Than You

Although the title expresses my feelings about an interaction I had with a colleague I respect, it is my intent to analyze more of the Alaska Division of Public Assistance RFP for Lean Consulting Services. But first, my apology.

After 11 years of engaging in the deep practice and study of Lean Thinking, I believe I have achieved a level of understanding that is significant. I have conducted many improvement events, and reviewed many, many more. I had to jump from actual engagement with Kaizen to strategic Kaizen because I felt very early how much power the CEO appears to have with employees involved in Kaizen. So I stopped conducting them, and became a cheerleader. I had 7 “Lean Champions” working for me at one time, and when I allowed them to do their job, they achieved amazing results. I continued to review their work, and coach/mentor when the opportunity arose. But when our staff was trained and allowed to analyze and improve their processes, with the right strategic philosophy in place, we always got better. But as a Lean Strategic Thinker, I also know that I can always improve. Dr. K. Anders Ericsson writes about improvement as a process where 10,000 hours of “purposeful effort” can lead you to world class achievements. Think of it as a Ph.D. The effort makes you world class in one area. The purposeful effort is defined as increasing the effort and intensity of your learning to another level after achieving mastery at the level you currently are. It means we are going to struggle with the new effort, but we will learn as a result.

I have a friend and colleague I have been working with for a while. He is close enough to tell me that I make him feel stupid at times. I am embarrassed by his revelation. I struggle with how to teach Lean. Oh, I can teach the tools and how to use them Gather data, map the value stream, analyze cause and effect, search for the root cause, 5 why’s and so many others that are helpful and beneficial in certain circumstances. But making the tools available is easy. That’s why I had 7 Lean Champions training in my Lean Promotion Team. What’s tough is the change in mindset that is required at the executive and managerial level. I cannot make a CEO feel stupid. I need to probe a CEO’s mind to discover what they are trying to accomplish, and help guide their training and thinking to that result in a gentle way. I have written about the process of Humble Inquiry written about by Dr. Edgar Schein. Our purpose as a Lean Strategic Consultant is to find what is in a CEO’s mind and guide them to Lean Thinking. Coaching and mentoring is what we should be doing.

Yet I also read about the opportunities for application of Kaikaku. Some circumstances call for rapid improvement, as when your business is hemorrhaging cash. When Porsche hired Shingijitsu in the early 1990’s. Sensei Chihiro Nakao took charge the first week and started making the changes necessary to turn Porsche around. A good sensei can do that, but generally refuses to in favor of guiding the cultural change necessary for a sustainable Lean transformation. Japanese Sensei’s can be very blunt to their clients because they achieve results, and when you are losing fistfuls of cash, improvement should be your focus every single minute.

Division of Public Assistance: When I write, I try to be objective and fact based. Yesterday, I wrote about the latest RFP from the State of Alaska’s Division of Public Assistance. I wrote things that could be irritating to a manager, but they weren’t intended to be. I don’t think that way any longer. With a mindset of continuous improvement, we always think about getting better. This means we have to accept the existence of problems and criticism as the identification of opportunities to improve. If I were engaged as a consultant in a workplace, my first act is to take the client to the Gemba and see what is happening. In most circumstances, I can do Kaikaku. But instead, I want the Executives to learn, and that means allowing them to struggle with what is to Lean consultants, a very easy fix. We want to teach them a process for improvement that endures as we solve the very large problems. The culture we want to teach the organization is simple: continuous improvement. Every problem needs to be fixed and no defect should ever reach a customer. Is it always cost effective to fix every problem? Maybe not. But addressing every problem should be the culture. If we cannot fix the problem because of cost, we fix as much of it as we can and continue with trying until we find a cost effective solution.

My point yesterday was supposed to be about the difficulties of selecting a software solution for a process problem. As a part of Lean Thinking, we focus on people solving problems, and automating only if the solution is implementing defect free processes. If DPA has achieved a Lean Cultural state where every problem is addressed, it would show itself in the RFP. I didn’t see it, but I admitted I have read very little about their Lean Culture. I admire their effort. However, as I try to learn, I analyze for what could be done better.

So I maintain my opinions from yesterday and expand on it in one way. When you look for a consultant, the strategic goal of the RFP should be very clear. There isn’t enough data in the RFP to determine what is necessary, but the language indicates that they are seeking a transformation from a tools based Lean Implementation to a Strategic focus. If they need Kaikaku, they don’t have an understanding of the concept yet. The improvements they seek seem to be focused on their software implementation. From a Lean Strategic Thinking focus, this would be a quick fix, but might not achieve a Strategic Transformation.

A Strategic Focus would search for the Root Cause of the flawed implementation of the software solution. This approach requires going back to Kaizen and updating the Value Stream Map VSM) that I read about years ago. The VSM helps with asking the 5 Why’s and determination of the deepest Root Cause we can find. When we solve the problems associated with that Root Cause, we end up with a Future State Map (FSM) that we work to implement. We standardize to the FSM and train employees in that value stream. We measure for improvements and monitor for defects that need correcting, and we solve them—continuously. If we see an opportunity for technology to improve our performance, we experiment with the proposed improvements and see if they work. If they do, we implement. If they don’t, we don’t implement.

And we always seek the Value driven improvement, which almost always leads to cost savings.

Now what would I do with the $800,000 top end of the RFP contract?

First, I would hire a Sensei experienced in Lean Strategic Thinking. At that point, they know the tools and are able to deploy them wisely. Second, I would hire 3 to 4 Lean Champions. If the situation is urgent, I would advise the Executive responsible for the organization to consider Kaikaku. The Sensei would guide the improvements with urgency, but as much teaching as is feasible. The hires would be temporary hires for one year, with an expectation that the savings that accrue from Lean would allow creating permanent improvement positions. My estimate yesterday was that about 100 FTE position effort would be eliminated within a few years. My strategy for accommodating this reduction in force comes in 5 stages. (1) Freed up positions are first assigned to reduce the backlog. And we know that at one time there was a backlog of 10,000 (of what is not clear); (2) assign freed up positions to the improvement office for service as Lean Champions with a goal of eventual redeployment to staff positions and spread of Lean knowledge throughout the organization; (3) reassumption of duties that have been contracted out—because we now have employees to can do the work internal to the organization; (4) reclassify and reassign employees through transfer to other agencies within the state government; and (5) allow turnover and vacant positions to absorb the savings. This strategy stays true to Toyota’s Respect of People philosophy. You don’t ask employees to improve their way out of a job. You guarantee as much employment as is feasible. In the private sector, as you achieve a competitive advantage over your peers through Lean, you gain more business and will need the personnel.

Will this work? I believe so. My experience is telling me that we can achieve significant improvement, but I don’t have all of the data I need to be sure. Through Lean, we achieve huge gains in productivity and cost. I don’t see any reason for a strategic implementation of Lean to fail with any state agency. Huge improvements are possible, but have to be guided properly.

Posted by: Knightbird | August 26, 2015

Alaska Division of Public Assistance

I have admired and written about the Alaska Division of Public Assistance before. The are pioneers in Lean Government, having started in 2009-2010 with a project I wrote about earlier. Since then, they have continued, but I heard very little about their progress. Today, I read an RFP for lean process consulting. It’s an admirable step. But it’s also a sign that perhaps they have not found true Lean. Because I do not have the capacity to bid on the project, let me speculate about the genesis for the need.

Because DPS is a large division underneath an even larger department that I have been interacting with for over 3 decades, I do know that DPA’s initiation of Lean is not a Department wide initiative. This tells me that there is no “strategic” leadership. The benefits of Lean at DPA were probably tools based. A kaizen is conducted through which amazing improvements emerge, but are not necessarily sustained. With 500 employees, they should have a cadre of Lean Specialists trained and conducting improvement events regularly.  I don’t have enough data to propose a right sized work force, but I would not be surprised if they have 20% more than a truly lean organization would need.

A second clue to the lack of strategic lean focus is the flawed implementation of their benefits management system. Referred to as “Alaska’s Resource for Integrated Eligibility Services” (ARIES), it appears that in their haste to implement an automated system, they violated one of the central tenet’s of Lean. Don’t automate unless there is a compelling reason to do so. I haven’t read of a compelling reason, other than certain requirements imposed by the federal government. It’s a fact of life that IT projects are expensive and considerably flawed in almost all implementation. The Municipality of Anchorage has a severely flawed implementation of its ERP software package. At an initial cost of $10 million, it has ballooned to over $50 million.  The new mayor has apparently put the project on hold, but in the meantime, a huge resource has been bled from public coffers, with a substantial price. $50 million invested at a 7% annual rate of return could generate $3.5 million in annual revenue. In order to do a fair comparison for evaluating the benefits of automation, we would need to have a highly efficient process costed out. At this stage in DPA’s Lean evolution, they acknowledge they had a backlog of 10,000 applications.

At this point, I want to make an obvious observation for a Lean Strategic System. Because there is not a strategic Lean vision, there are ineffective “Pull” systems in place that extend beyond DPA. I envision a lot of batching in supportive systems throughout DPA’s area of expertise. I am sure there are federal pull systems that hinder their operations substantially as well, since they manage federally funded programs.

From the information provided by DPA, we see that they serve 150,000 Alaskans monthly with a staff of 500 located in 11 offices. This isn’t enough data to speculate on where more efficiencies can be gained. Using some rough analytics, 150,000 total clients average out to 300 clients per staff per month. Because there are various processes, all I can speculate about is that they have a daily Takt time of 15.1 Clients per minute (150,000/22 days=6,800 per day; 6/800/450 minutes=15.11). Cycle time isn’t obvious because no data is given. We can assume given the wide range of programs administered that the tasks involved are of varying degrees of complexity I can speculate that we need to load level (heijunka).

So what would my recommendations be? First, I would try to understand the current system by mapping it out. I do know that they have a minimum of 8 programs they administer. Each applicant must meet eligibility requirements, I would guess for multiple programs. I would try to identify the wait time within each process, but basically, there is one entry portal with multiple paths to travel. We need to identify a cycle time for each pathway. We would need to identify the documents used and the pull systems required for the full cycle. Usually the waiting time generated by inefficient pull systems greatly adds to the lead time for a cycle. Any good measure of a process also includes the defect rate and any feedback loops generated. Feedback loops area huge time waste that can be eliminated through standardized responses.

The actual improvements can be generated in one week with a series of kaizen participants working on different parts of the processes. We have to just mitigate the pull systems the best we can, but for our processes, we want to do the following.

First, the intake/application form can be standardized for each program with a single Personal Identification Section. (PI). Questions answered lead to additional sections. For some programs, we need to know if there are dependents and their status. Regulations define the extent to which we need to collect and verify this data. So our questions are linked to the regulation and form the basis for audit, if needed. We did this exact same process when we did a Kaizen for our Head Start program at a prior employer. Our file pattern was linked to the regulations and allowed us to verify required information within the file. Any gaps in the file pattern meant we were out of compliance. What we want to do is gather the appropriate information, and no more. Further requirements depend on answers to previous questions and if the data is not required, it is not collected. The application process is mistake proofed to our best ability. We want a complete application when it arrives. The application should then flow as best it can through a process that leads to eligibility determinations and action. We reduce or eliminate as many waiting periods as we can. We reduce or eliminate feedback loops and defects. At the end of our Kaizen, we have implemented as many improvements as we can and at the end of the week, we are ready to train staff on the process. We roll it out and measure the new process for improvements. At the same time, we empower staff to resolve defects at the time they occur.

Ultimately, I would expect about a 20% reduction in staff time required to complete the work necessary to clear 15.1 clients actions per minute. With 500 employees, there is 33 minutes available every day of total possible value adding time per client.

DPA is to be commended for their continuous quest for lean knowledge. The should be supported by their Governor, Commissioner, Deputy Commissioner and Director, working as a team. When the state figures it out, I expect DPA will become the shining Lean Start in our state portfolio of services.

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