Monthly Archives: March 2008

The Battle Over Efficiency vs. Quality vs. Cost in Hospitals and Clinics

Today I’d like to thank Dave Stephens of Coupa for letting me re-post his thoughts on efficiency vs. cost in health-care providers.

Coupa has been working with a number of healthcare organizations lately, and so we thought we’d share some of the e-procurement challenges that we see as unique to that industry.

We’ll start with a simple question that has a surprisingly un-simple answer: Should healthcare providers prioritize quality over efficiency when in comes to patient care? Yes, you say, of course! But what does that really mean? Let’s take this question past the typical sound bite by using a specific example –

Discussion Point: Orthopedic casts

There are two different “technologies” used in the casting process. The casts are most frequently made from plaster, but fiberglass bandages are viewed as an increasingly popular and more modern alternative.

So what if you take a fresh batch of physicians, straight out of medical school, and plug them into a system where plaster is mandated (let’s say due to the presumption of lower cost due to “part” and “procedure” standardization)? Let’s say these newer physicians are inexperienced in plaster because they’ve always used the “newer” fiberglass bandage method in their residency programs. What you’ll most likely find is both quality and efficiency of casting by these new physicians is very low. Compound that with a low frequency of performing the casting procedures, and you’ll realize it will take a long time for proficiency to rise to adequate levels. The original goals of standardizing will have failed – costs will be higher, procedures will take too long, and quality of care won’t be high enough.

The obvious answer, to use fiberglass for casts, has a hidden problem. The hidden problem is the more senior physicians. They have used plaster for years and are very proficient at it. These physicians can give a higher quality of care at a lower cost using plaster – without a doubt. Not only that, they may have a perspective that fiberglass is not as good as plaster and may be fairly unwilling to move to what they view as a lower quality method of casting.

At this point some hospitals and clinics just give up and carry both fiberglass and plaster. And maybe that’s the right decision. Perhaps over time fiberglass may displace plaster altogether. What is the real cost / benefit for pushing one method over the other, especially once the true costs of switching for your professionals are factored in?

Conclusion for Healthcare organizations adopting e-procurement initiatives

An efficient e-procurement program recognizes the need for a high quality of care and supplies the necessary goods to practitioners even if it means sacrificing on the admirable goals of part standardization. We’d assert that being flexible with physicians results in lower total cost by reducing rework and increasing the operational efficiency of a healthcare organization’s high value assets (its professionals).

The same story can be told across a wide variety of supplies and procedure kits. From sutures to bandages, from scalpels to IV needles, the best supplies are those that your physicians and nurses are most comfortable using.

So consider your e-procurement goals before embarking on your programs in healthcare organizations. Focus first on convenience. With e-procurement your cycle times for receiving materials should be cut by weeks. Focus next on inventory management. With e-procurement you should have a much better handle on min/max reorder points and on your inventory levels and carrying costs.

And then where you can do so without impacting quality, reduce costs further by standardizing – with care.

It’s e-Procurement for Health-Care Week!

One of the areas I don’t talk much about is health-care – even though it’s one of the areas that could probably benefit the most from e-Sourcing and e-Procurement? So why don’t I talk about it? Because I don’t do any work in the area. Why don’t I do any work? Because the standard response from your average health-care (service) provider when you try to talk to them about e-Sourcing, e-Procurement, or even e-Commerce is either that (1) it’s not important, (2) it would interfere with the quality of patient care so we won’t consider it, or (3) that’s what the GPO is for.

All of these answer annoy me greatly, but needless to say answer #3 annoys me the most. Think about it – most GPOs in the health-care sector follow the standard “supplier-pays percentage of purchase” model with little oversight. How much incentive does an unmonitored “supplier pays” GPO have to reduce prices? Not much – the more they reduce prices, the less they get paid. So, after getting asked about the sector recently, I thought it would be a good time to do a series on the status of health-care and how e-Procurement could help. Since I’m not a health-care expert, I invited some thought leaders to share their views – which I’ll be posting this week.

With respect to the state of the U.S. health-care system, the McKinsey Quarterly just ran “An Interview with the CEO of the Cleveland Clinic” as their contribution to Innovation in Health Care where Delos “Toby” Cosgrove discusses the state of health care and how top executives can contribute to innovation and reducing the nation’s health care burden.

At a cost of about 2 Trillion annually, or 16% of GDP, it’s clear that costs need to be contained. However, the goal of health-care is to improve quality, and it is going to take real innovation to find ways to reduce costs while improving quality – especially when Toby might be right when he says that the only way to significantly reduce costs and improve quality is to reduce the burden of disease. However, when forty percent of premature deaths in the US are caused by obesity (and Toby states that 2/3s of the country is overweight and 1/3 are obese), inactivity, and smoking – how do you prevent this without changing people’s lifestyles?

However, one thing you can do is measure outcomes and develop quality metrics – then you can put a value on the health care dollar. Unfortunately, there is not a lot of information out there on what quality is or what you should measure – but Toby’s Cleveland Clinic is working on defining outcomes in every department for all common procedures and diagnoses, and is improving both the quality, and quantity, of metrics on an annual basis. Based on these metrics, they can find problems, address them, and improve quality. By improving quality, they eliminate waste, and eliminating waste reduces cost – providing a greater value for each health-care value spent.

Other things you can do will be covered in the forthcoming posts.

Fallacies of Logistics Productivity Management

Manufacturing & Logistics IT recently ran an article on “The 10 Fallacies of Logistics Productivity Management” that noted that productivity management often represents the lowest hanging fruit for companies interested in reducing supply chain costs. It also noted that the failure to implement advanced productivity management systems may be related to a number of misconceptions surrounding productivity management system processes, technology, and impact. I’m betting the authors are right … because I know similar fallacies prevent many companies from adopting modern strategic sourcing support software.

The top 10 fallacies outlined by the article are the following:

  • My current WMS / ERP does productivity management.
    Warehouse Management Systems (WMS) manage your warehouse with respect to inventory, what’s coming in, what’s being stored, and what’s moving out. They don’t optimize your logistics. Enterprise Resource Planning (ERP) systems are even worse – they just tell you what you need to acquire to produce your products
  • Productivity management represents an unenlightened way of thinking about employee relations.
    Advanced productivity management systems emphasize such elements as management/supervisor engagement, detailed training on the best method to perform each job, and consistent employee feedback.
  • Productivity Management Systems reduce morale and increase employee turnover.
    The reverse is almost always true because employees want to know how well they are performing when measured against fair and objective feedback.
  • Productivity management benefits are primarily for the DC manager.
    Productivity Management provides a broad set of benefits that supports multiple organizational objectives by way of cost reductions and quality improvement.
  • Productivity management increases complexity and risk.
    The reverse is almost always true as it generally dramatically reduces operator variability by way of the increased training requirements.
  • Productivity management doesn’t add a lot of value.
    It’s true that engineered standards deliver results, but without productivity management, the extent of the results delivered will often be limited.
  • A new “system” won’t provide much incremental benefit when high quality DC supervision is in place.
    Good management is good – but precise, discrete goal time calculation and detailed feedback is better.
  • Productivity management requires too much time for data collection and administration.
    Companies with WMS and/or RFID systems already have the data collection infrastructure in place to support productivity management systems.
  • Productivity management is unnecessary in an incentive environment.
    Advanced productivity management systems offer benefits beyond incentive systems by way of discrete standards that precisely determine the specific goal times of each task.
  • Productivity management won’t fly in a union environment.
    It all depends on how you sell it … are you trying to ram it down their throats, or are you introducing it with increased training and a new incentive program based on the new, objective, metrics the system will capture?

(A Great CPO is) The Practical Visionary

A recent article in Strategy+Business which started off by noting that today’s Chief Information Officer must enable the organization to meet its strategic goals and to envision goals that were never before possible caught my eye. The article, which quickly quoted Michael Giledman who said that you (need to) spend a lot of time listening and fixing things in the background because you need to prove yourself if you want to be taken seriously, really emphasized why today’s CIO needs to be The Practical Visionary.

Moreover, not only is the article packed with great advice for CIO’s – but it’s also packed with great advice for CPO’s! The article noted that today’s CIO also trains her focus on the demand side of the business, becomes a serious contributor to business results, and harnesses powerful new technologies that make (real-time) information attractive and accessible. This is because a strategic CIO has much to offer the organization with her specialized knowledge of the capabilities, requirements, and costs of new technology – capabilities that uniquely position the CIO to help the organization set priorities that affect each and every one of its operations.

Replace “CIO” with “CPO” and add “product” to the above and you get Today’s CPO also trains her focus on the demand side of the business, becomes a serious contributor to business results, and harnesses powerful new (on-demand) technologies that make (real-time) information attractive and accessible. This is because the strategic CPO has much to offer the organization with her specialized knowledge of the capabilities, requirements, and costs of (new) products and technology – capabilities that uniquely position the CPO to help the organization set priorities that affect each and every one of its operations. That’s one of the best descriptions you’re going to find anywhere on what today’s CPO needs to be!

It’s a long article, but like many of the articles on Strategy+Business, it’s a good read. The article also stresses the importance of openness, intelligence, and interoperability – which are also key to supply and spend management success. And of course, just like the CIO has to manage the information life cycle, the CPO has to manage the product and service life cycles. The guidelines it gives for strategic leaders are also very well thought out and worth the read. So check it out.

To Win the Talent War, You Must First Defeat the Enemy Within

As evidenced by my recent Talent Week series, and many posts on Talent here on this blog, a major war for talent is building, and you stand to lose your business if you don’t start preparing now. However, as clarified in a recent McKinsey Quarterly on “Making Talent a Strategic Priority” article, before you can win on the global talent battlefield, you have to first insure that you’ve defeated the enemy within.

The article notes that, to a considerable extent, executives should be blaming themselves for their talent woes. Although it’s true that shareholders and investment analysts are largely responsible for the obsession with short term performance, it is managers who too readily treat talent in a reactive, knee-jerk manner – by hiring additional sales and marketing people only after new products take off and by cutting discretionary spending on people development when performance drops. As Charles and Don were quick to point out in their posts, the best way to acquire the talent you need is often to develop it within. Furthermore, companies that cut talent are making the worst innovation mistake they can make. This failure to focus on talent creates a vicious circle: a lack of talent prevents corporate growth which creates additional performance pressures which causes executives to put even greater emphasis on the short term which starts the cycle again.

Furthermore, when companies do make talent a priority, they tend to fall into another trap where they adopt an overly narrow focus on HR systems and processes – which diverts attention away from the place where the biggest obstacles lie: their heads’. Systems and processes don’t create innovation – innovative people, with the right experience and training, do.

Then there’s the seven obstacles to good talent management:

  1. Senior managers don’t spend enough high-quality time on talent management
    People are the key to your success, so why aren’t they your top priority?
  2. Siloed organizations that do not encourage constructive collaboration and resource sharing
    Establish organizational wide goals and organizational wide teams and focus on common objectives. (And whatever you do, don’t tear all the walls down and build an “open environment” thinking that it will solve all your problems.)
  3. Line managers are not sufficiently committed to the development of people’s capabilities and careers.
    Which is not surprising, since they take their lead from the CEO who is consistently failing to put people as his or her top priority.
  4. Line managers are unwilling to differentiate their people as top, average, and underperformers.
    Differentiation is not necessarily a bad thing. If you don’t know who’s underperforming, than you don’t know who is the most desperately in need of training. And if you don’t know where they’re weak, how will you select the right training?
  5. CEO’s and senior leaders are not sufficiently involved in the shaping of the talent management strategy.
    Talent management needs to start at the top.
  6. Senior leaders do not align talent management strategy with business strategy.
    Talent needs to support the business. Shouldn’t the two be aligned?
  7. Line managers do not address under-performance effectively, even when chronic!
    This is a triple whammy. First of all, under-performers might not even realize they are (chronically) underperforming. Secondly, they are not getting the help they need. Thirdly, it’s sending a message to the rest of the organization that under-performance is okay.

In summary, you need to win the battle within before you’ll be ready to fight the coming war.