Monday, June 30, 2014

Focus and Leverage Part 357

For the past year, I have been consulting in the healthcare field….not exclusively, but predominantly.  It makes me sad to hear about all of the problems within the VA, but truthfully, it doesn’t surprise me.  While working with some of these heathcare facilities, I heard comments like, “If we want to improve outputs, we must increase inputs, or if we want to increase patient volume in a clinic, we need more personnel, space, advertising, etc. and even, if we want to improve (decrease) waiting time for patients, we need more personnel and equipment.”  The fact of the matter is, it’s absolutely possible to do much more with what you have because the performance of the whole system depends on a few factors - - the system constraints.

The problem is, most hospitals strive to have every unit in their organization functioning optimally, and when this happens, the entire organization usually suffers.  By focusing on everything, you typically get very little improvement.  Approaching improvement in this way actually results in sub-optimization or local optimization when true improvement happens only when the system improves.  Thinking in terms of a system perspective is when improvement happens.  Let’s look at an example of what I’m talking about.  I know of a private hospital who tried to increase their Operating Room capacity.  They decided to create more operating rooms and time slots, but throughput did not increase.  Why not?  Because they failed to consider the impact of more surgeries on the recovery rooms.  The recovery rooms simply did not have sufficient capacity to house additional patients.  This hospital focused on local optimization and did not consider the impact on the rest of the system.  One more time, focusing on local optimization will not result in improvements to the system.

The key to having a sustainable improvement initiative is by management by constraints and looking at the impact of changes on the system.  Management by constraints, as I’ve written about many times on this blog, is truly an innovative and very effective approach which was developed by Goldratt and Cox in the mid-80’s.  And while many people believe that this is a five-step process, I believe it is a seven-step process as follows:
  • Determine the system’s goal
  • Establish global performance measures
  • Identify the system constraint
  • Decide how to exploit the constraint
  • Subordinate the rest of the system to the constraint
  • Elevate and break the constraint
  • If the constraint is broken, return to step 3

The goal of any organization should be foremost in everyone’s mind and should act as a guide for every decision and action taken.  In for-profit organizations the goal should be to increase the the shareholder’s value or net worth.  For not-for-profit organizations, like many hospitals, the goal is determined by the mission of the organization.  For example, the goal of a not-for-profit health care organization should be something like, maximizing the quality of healthcare services provided to patients, within the limits of the budget.

Determining the goal of an organization can be somewhat problematic for some organizations in the healthcare world and other industries because of the apparent death grip traditional cost accounting has on many organizations.  As I have written about many times on my blog, attempting to become profitable through cost cutting is simply not the right approach.  The right approach to improving profitability in healthcare organizations is by focusing on the revenue generating processes like surgery. clinics, and even the emergency departments while maintaining the same level of labor in these areas.  But improving these areas in isolation, such as the example I gave you earlier (i.e. surgical unit) without looking at the entire system (i.e. recovery room availability) will be a fruitless activity.

In the next several postings, we’ll talk more about healthcare organizations and how they might focus their improvement efforts.  I also want to re-visit the concept of being a satisficer versus being an optimizer as you approach improvement.

Bob Sproull

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