Lean is Invading Health Care by James P. Womack

How do we judge the progress of the Lean Movement? One critical indicator is our success in extending lean thinking to new industries and activities. In recent years, I have been greatly encouraged that lean thinking is moving far beyond its origins in manufacturing to distribution, retailing, maintenance and overhaul, consumer services, construction, and – perhaps most striking - healthcare. Indeed, the latter may be the most energetic area of lean practice today.

However, I have been concerned about our prospects for changing the thinking of investors, and specifically the giant private-equity investment firms that now control large parts of the economy. While we have gained a strong foothold in financial services, this has been at the operating level. Most efforts to date have focused on how value streams within financial firms can be made lean -- for example, those for processing loans or making credit checks. This is important work but it is on a different level from how financial firms think about investments and specifically how they might instigate lean transformations in the firms they control in many industries.

I was therefore delighted recently when I was contacted by one of the largest private-equity firms, an organization with dozens of firms in its investment portfolio garnering perhaps 100 billion dollars in total sales. This type of firm pools private investment funds to buy companies, in hopes of quick "turnarounds" with re-sale of these firms at much higher prices.

The partner contacting me noted that conditions in this industry have changed with the credit crisis and weak equities markets. Instead of selling firms after two or three years it may be necessary to hold onto them for a long time, even a decade, before they can be sold to advantage. His question was a simple one: "Given that we may now need to hold firms for many years, how can we take the long view. Indeed, how can we turn firms into the 'Toyota' of their industries in order to maximize their price when they are sold?"

I was delighted to engage in this conversation. But to avoid any misunderstanding I needed to start by comparing a traditional private equity "turnaround" with a "lean transformation". In the former, the objective to this point has been to go quickly to produce a dramatic bottom-line result. This has often meant:

•  "Rolling up" two or more companies in the same industry to reduce competition and increase prices to consumers.

• Negotiating lower wages and benefits.

• Cutting spending on long-term development projects not critical to the firm's strategic plan.

• Reducing headcounts in activities judged non-essential.

• Restructuring the balance sheet to add bank debt, often creating instant dividends for the private equity firm but high levels of long-term debt for the firm once it is sold.

• Re-negotiating prices with suppliers, on threat of loss of business.

These actions quickly shift wealth from customers, employees, suppliers, and former owners to the new owners. This may do more good than harm, because otherwise the firm in question may completely fail. But it is often unclear that any additional value has been created in the sense of better satisfying customer needs with a given amount of human effort and capital investment. And, from society's standpoint, the only way to increase living standards is to change the ratio of human effort and capital going into firms to the amount of value coming out. Otherwise the outcome is basically zero- sum, with some winners and some losers.

By contrast, the objective of a lean transformation is to analyze the core value creating processes of organizations in light of customer needs (which may have changed), then figure out how to create more value with the same resources so the organizations can grow and society can prosper. It's the difference between shifting wealth from one party to another and creating more value, ideally value that can be shared with customers, employees, suppliers and owners. (Note that I never use the term "adding value" because this is an accounting convention for the difference between the input costs of a firm and its output prices. Often I find that only cost is added by the firm as inputs are converted to outputs, not value from the customer's standpoint.)

I was relieved that after a frank discussion of the differences between traditional and "lean" private equity, the firm in question was still interested in pursuing lean. Indeed, this firm has now launched a wide range of experiments to "lean" the processes of its portfolio firms, and other private equity firms are now following its lead. It is far too soon to know how much progress will be made along this new path. But I'm heartened that an industry I feared I would never hear from is now actually listening.

As I always tell audiences, managers (and owners) will try anything that is quick and easy even if it doesn't work (e.g. many of the traditional methods of private equity in the current environment) before they try anything long and hard that does work (e.g. intense process analysis linked to customer needs to create more value from the same resources.) So perhaps the massive private-equity industry, by virtue of the recent shifts in the global economy, is now ready to tackle long, hard things which do work.

James P. Womack

Founder and Chairman

Lean Enterprise Institute

P.S. As I travel to visit companies and make presentations on lean thinking, I am bemused by the perception that LEI is a private consulting firm. While our faculty members and authors make most of their living in independent consulting businesses, LEI itself is a non-profit organization with no owners and no consulting contracts. We are chartered to teach courses, hold management seminars, write and publish books and workbooks, and organize public and private conferences. We use the surplus revenues from these activities to conduct research projects and to support other lean initiatives such as the Lean Education Academic Network (www.teachinglean.org) and the Lean Global Network (www.leanglobal.org). Our activities are a continuation of the educational work I did for many years at MIT, directly across the street from our LEI office in Cambridge, MA.

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A Modern Bugbear, HIV Transmission, The Economist, April 10th 2008

Using the law to contain infections may do more harm than good.

AT FIRST blush the bigwigs at the Health Protection Agency, which monitors diseases, could have told a rosier story. On March 28th they reported that sexual-health clinics diagnosed 8% fewer HIV infections last year than in 2006. But Britain's epidemic is not fading, they insisted. New infections among gay men and straight people are close to all-time highs; falling infections among heterosexuals who caught the virus in Africa account for almost all of the decline (see chart).

There are more ominous trends than these. Britons' understanding of the risks has gradually worsened over the past decade or so. In January a poll by Ipsos MORI found that more than two out of five Londoners do not know that sex between men carries a chance of transmitting HIV. Lately, says Yusef Azad of the National AIDS Trust, a charity, the proportion of gay men having unprotected sex who give blood for a syphilis test but refuse to do so for a HIV test has gone up.

Is this complacency or dread? Mr Azad worries that some gay men may shirk free HIV checks because they fear a positive result could incriminate them in future. Since 2001, 13 people in Britain have been convicted of reckless grievous bodily harm (reckless injury in Scotland) for spreading HIV to their partners. Because recklessness involves taking a known risk, eschewing knowledge of the danger probably averts a court case.

Doctors and campaigning groups such as the National AIDS Trust say that the legal system creates muddled disincentives for public health. One man without a biochemical diagnosis of his status has been convicted after he ignored advice from a clinician and his South African wife that he should get one. But because a court in Liverpool also found him guilty of bigamy and fraud, with all the charges bundled together, his case provides an iffy precedent, if one at all.

The World Health Organisation has branded British police tactics "objectionable" and bemoaned the courts' feeble understanding of virology. Until 2006 prosecutors bedazzled defendants into pleading guilty by waving lab reports of the genetic similarities between the virus in their blood and in their accuser's. Yet such data cannot rule out other possibilities, for example that the accuser really infected the accused or a third party infected both. Sarah Porter, one "AIDS assassin", as the tabloid press often brands those found guilty, may have been wrongly convicted, reckons Matthew Weait, a law lecturer who has written a book on the criminalisation of HIV transmission.

Chaos might be expected given that the law employed in such cases was written before doctors fully grasped that germs caused contagious diseases. It is also why the Crown Prosecution Service recently provided formal guidance. A policy statement published on March 14th makes clear that genetic data will always form part but never the entirety of case evidence. Moot points remain, such as whether someone who does not tell a partner about having HIV and transmits the virus when a condom splits is reckless.

Using the law to punish reckless disease-transmission runs the danger of doing more harm than good. Tellingly, HIV is the only bug ever to have prompted a criminal conviction in England and Wales. And the sentences so far meted out have been more than twice as long as those for the violent whacking and clobbering involved in other grievous-bodily-harm crimes. Yet living with HIV in Britain is less dangerous than living with hepatitis C, another sexually transmitted virus. 

www.economist.com/world/britain/displaystory.cfm?story_id=11024358