Last week I discussed the importance of purpose and making organizational purpose perfectly clear to everyone. This week I will cover one of three topics under the rubric of Process:True North Metrics.
Purpose, process, people.
Once purpose is clearly defined we need a process to actually achieve it. Part of that process is knowing how to measure success. Determining how to measure success is one of the most difficult problems on the lean journey. I struggled with my team over the years in defining metrics. I think this was hard because there were so many possibilities and so many perspectives. This struggle is what creates deep understanding though, and ultimately thats what true north metrics should reflect, the core of what the organization is in business to do.
When we first started on this journey our consultants initially challenged us to get our core measurements to the two or three things that really mattered. We argued about this for three days. How could we possibly distill the complexity of the business to only three things? We were quite proud of our first attempt. We decided there were three things that were really important on our journey to transform ourselves. The three things were meeting budget, achieving 95% performance in the country on all quality indicators and having all our staff members on Kaizen events (Kaizen is defined at ThedaCare as 5-day activities during which staff are taken off of their daily work to study their work and make suggestions as to how to improve and then these improvements are rapidly implemented over the next week).
As the years went by and we better understood our business we were subsequently embarrassed by our first attempt at True North. Meeting budget for example, had nothing to do with year-over-year improvement because the budget was re-set every year with higher expense levels than the year before. 95% performance on quality indicators left our patients still receiving many defects as the entire industry was poorly performing on medication errors, infection rates, and other defects. Having people on improvement events was a good idea but were we instilling the culture of continuous improvement by only doing events?
Thinking more deeply about this and using a standardized problem solving tool called an A3 (see attachment below for a description of the A3) we realized some important lessons. The key driver to our financial well being was labor. 60% of our expenses were in labor. Shouldn’t we focus our activity on this? We had established a no lay-off philosophy years before to help differentiate us in the market place for health care workers so how could we reduce labor costs without jeopardizing this core value? As we learned more about the methodology of continuous improvement called lean, we understood that taking waste out of the work process could make workers do more value-added work and improve the productivity of each staff member. We could improve productivity and simply not hire new people. The turnover rate in the first few years of the journey was over 10% so that was our opportunity. We also knew that each 1% of productivity improvement led to millions of dollars of operating income improvement. We now had the true north metric for organizational financial performance. Productivity, defined as gross revenue/FTE with price increases removed year over year is still the key financial indicator at ThedaCare.
The same deep understanding that led us to the productivity measure being true north can also be applied to quality performance. 95% of performance in the country still left us with many quality defects.The danger with comparative performance measures is that they can create a false sense of well being.95% may mean compliance 85% of the time with a quality measure. 85% compliance is 150,000 defects per million, certainly not what would be considered good quality. A simpler example is mortality rates in surgery. A 3% mortality rate in heart surgery means nine patients die each year if there are 300 surgeries. 3% seems reasonable but nine people dying doesn’t. As we considered this we came to the conclusion that it was the absolute number of defects that were important. The nine people, not the 3%. We moved from 95% to 50% reduction in defects as true north. That would take us from nine deaths to four or five the next year and so on. ThedaCare’s heart surgery team had one death in 2009 while doing 350 cases, still too many but by reducing defect rates 50% year over year they have moved very close to zero.
Finally, the third metric regarding staff engagement was initially flawed as well. We wanted staff to have hands on experience doing kaizen as that was important for them to learn the continuous improvement principles but number of employees in Kaizen was not the best way to measure engagement. As we visited other lean companies and began to deeply understand what impacted staff morale the most it became clear that engaging staff in problem solving and implementing their ideas for improvement was the true north for engagement. Toyota workers implement 69 ideas each every year.
I hope these these examples have been helpful to show how continued dialog and deepening understanding over time lead to the best true north metrics. This is dynamic, the metrics will continue to change as the organization changes, the market changes and the people change. Please click here to read more about A3s – A3 Summary5
Next week we will tackle transparency, the second core topic under the rubric of Process.